An obligation made by one company to secure the declining value of another company's assets through the commitment of shares. Made famous by Enron, this method of backing a company's declining assets helps to inflate the value of a troubled company by hiding losses. Furthermore, due to the volatile nature of the stock market, devaluations in price of the securing company directly relates to a commitment of more shares and thus a dilution occurs.
1. The total cost of an option. 2. The difference between the higher price paid for a fixed-income security and the security's face amount at issue.3. The specified amount of payment required periodically by an insurer to provide coverage under a given insurance plan for a defined period of time. The premium is paid by the insured party to the insurer, and primarily compensates the insurer for bearing the risk of a payout should the insurance agreement's coverage be required. 1. The premium of an option is basically the sum of the option's intrinsic and time value. It is important to note that volatility also affects the premium. 2. If a fixed-income security (bond) is purchased at a premium, existing interest rates are lower than the coupon rate. Investors pay a premium for an investment that will return an amount greater than existing interest rates.3. A common example of an insurance premium comes from auto insurance. A vehicle owner can insure the value of his or her vehicle against loss resulting from accident, theft and other potential problems. The owner usually pays a fixed premium amount in exchange for the insurance company's guarantee to cover any economic losses incurred under the scope of the agreement.
A number or alphanumeric character assigned to a mortgage-backed security (MBS) by the issuer as an identifier of that security. Pool numbers are typically six digits in length. Different issuers such as Freddie Mac, Fannie Mae and Ginnie Mae use different alpha characters as the initial digit in their pool numbers to identify the pool as their issue. For example, a Freddie Mac 30-year pool number might be D54321 while a Fannie Mae 30-year pool number might be F54321. |||Mortgage-backed securities (MBS) traders frequently use pool numbers (as opposed to Cusip numbers) to identify and trade securities as the pool number is more easily quoted, and the initial digit in the pool number frequently identifies the issuer. Those familiar with pool numbers might also be able to quickly distinguish between older and newer issues by the pool number.
A division of publicly-traded MBIA, Inc, and a primary worldwide issuer of financial guarantee insurance. Used to back municipal bonds and structured finance products, MBIA insurance is used as an avenue to credit enhancement, as MBIA's insurance promises to pay interest and principal on any bonds that suffer an issuer default. The presence of MBIA insurance on a municipal bond typically ensures an 'AAA' rating or its equivalent from the major ratings agencies and also makes the bonds much more marketable to investors. |||Bond issuers may find they can even lower the total cost of issuing debt by purchasing MBIA insurance, as the higher rating the bonds would garner could allow the issuer to lower the coupon rate to investors. MBIA and its competitors try to keep their own credit ratings at the highest levels, as this obviously makes their services much more valuable to clients and investors. They do this by diversifying their insured portfolios across nation, sector and asset classes, and also by keeping certain measures of financial leverage below dangerous thresholds.
1. In investing, income that is earned through the sale of an option. The writer of an option earns premium income; the buyer of the option pays the writer a premium in order to have the right (but not the obligation) to exercise the option at a fixed price and specified date. 2. In insurance, revenues that an insurer receives as premiums paid by its customers for insurance products. When a customer purchases an insurance product, such as a health insurance policy, the customers cost for a specified term of the policy is called the premium. 1. An option's original sales price is referred to as its premium; this is the price that the buyer of a put or call must pay to the seller (writer) of an options contract. Investors can profit by writing covered options contracts when the underlying stock is owned; or by writing a naked option if the underlying is not owned. If the option expires without being exercised, the option writer profits by the full premium amount. 2. An insurance company's premium income is revenue that is derived from premiums paid by customers. Premiums are paid for all types of insurance policies including health, automobile and home. A premium is the cost paid for coverage under the policy for a certain period of time. This excludes other sources of revenue such as investment income.
The date on which the principal amount of a note, draft, acceptance bond or other debt instrument becomes due and is repaid to the investor and interest payments stop. It is also the termination or due date on which an installment loan must be paid in full. |||The maturity date tells you when you will get your principal back and for how long you will receive interest payments. However, it is important to note that some debt instruments, such as fixed-income securities, are "callable", which means that the issuer of the debt is able to pay back the principal at any time. Thus, investors should inquire, before buying any fixed-income securities, whether the bond is callable or not.
A strategy of holding two offsetting positions, one of which creates an incoming cashflow that is greater than the obligations of the other. Similar to arbitrage, positive carries generally occur in the currency market where interest paid to investors in one currency is more than they have to pay to borrow in another currency. Another example of a positive carry would be borrowing $1000 from the bank at 5% and investing it into a bond paying 6%. Thus, the coupon on the bond would pay more than the interest owing on the loan to the bank, and you pocket the 1% difference.
The modern composite-margin requirements that must be maintained in a derivatives account containing options and/or futures contracts. Portfolio margin accounting requires a margin position that is equal to the remaining liability that exists after all offsetting positions have been netted against each other. For example, if a position in the portfolio is netting a positive return, then it could offset the liability of a losing position in the same portfolio. This would reduce the overall margin requirement that is necessary for holding a losing derivatives position. Portfolio margin requirements have only been recently instituted in the options market, although futures traders have enjoyed this system since 1988. This revised system of derivative margin accounting has freed up millions of dollars in capital for options investors that previously was required for margin deposits under the old strategy-based margin requirements that were instituted in the 1970s.
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