ABC paper Asset-backed
above par Selling for a price in excess of par value.
absolute pricing model An asset valuation model that bases prices on economic arguments as opposed to other related prices quoted in the market.
acceptance A time draft on which the drawee has accepted an obligation to make payment.
accrual bond A type of CMO bond, also called a Z bond.
accrual instrument A money market instrument that accrues interest to maturity.
accrued-coupon bond A bond that, rather than paying coupons, accrues them to maturity.
accrued interest Interest that is earned but not yet paid on a bond or other obligation.
adjustable-rate preferred stock Preferred stock that pays a dividend linked to floating interest rates.
agency Agency security.
agency security A security issued by a US federal agency or government sponsored enterprise.
ALM Asset-liability management.
alpha transport Use of a self-financing market neutral strategy to generate alpha in one market while investing in another.
alternative option A better-of option.
Amaranth Advisors A hedge fund that suffering staggering losses speculating on natural gas prices.
American exercise A provision that permits exercise of an option any time prior to expiration.
AMT bond A municipal bond whose interest is subject to the Alternative Minimum Tax.
annual compounding Compounding based on annual crediting of interest.
annual rate of return Rate of return.
annualized return A return calculated over one period, but adjusted to be comparable to a return calculated over a year.
annualized volatility A quoting convention for volatility.
antithetic variates A technique of variance reduction for the Monte Carlo method.
AR process Autoregressive process.
arbitrage 1) A transaction that generates a risk-free profit; 2) a leveraged speculative transaction; and 3) the activity of engaging in either of the above two forms of arbitrage transactions.
arbitrage CDO A CDO sponsored for the purpose of adding value by repackaging collateral.
arbitrage condition Any relationship that must prevail between certain prices if they are to be arbitrage-free.
arbitrage free A condition in which prices offer no arbitrage opportunities.
arbitrage-free model A type of financial engineering model that generates prices that entail no arbitrage opportunities.
arbitrage-free pricing The approach to pricing instruments that underlies essentially all of financial engineering in complete markets.
arbitrageur One who engages in arbitrage.
ARCH Autoregressive conditional heteroskedasticity
arithmetic random walk A random walk with increments that are a Gaussian white noise.
arithmetic random walk with drift An arithmetic random walk with a constant drift.
arithmetic return Simple return.
ARMA process autoregressive moving-average process.
arranger A party that arranges a syndicated loan.
ARS Auction rate security.
Arthur Andersen conviction In 2002, accounting firm Arthur Andersen was convicted on a single charge related to its auditing of Enron.
Asian option An option whose expiration value depends on the average value of an underlier over a specified period.
Askins, David Manager of the Granite Fund, a hedge fund that failed in 1994.
asset-backed commercial paper Commercial paper secured by receivables or other assets.
asset-backed security A securitized interest in non-mortgage assets.
asset-based lending Collateralized lending.
asset-liability management Techniques for protecting a firm's solvency in the context of accrual accounting.
asset-liability risk Risk to a firm from having assets and liabilities whose risk exposures do not offset one another.
asset-or-nothing binary A type of binary option.
asset sensitive Having assets that reprice earlier than liabilities.
asset swap A non-vanilla swap customized to change the character of a specific asset.
asset value model A type of default model.
at par Selling for a price equal to par value.
at-the-money A condition where the value of an option's underlier equals the option's strike price.
auction rate security A floating-rate municipal security.
autocorrelation A correlation between a component of a stochastic process and itself lagged a certain period of time.
autoregressive conditional heteroskedasticity A category of conditionally heteroskedastic stochastic processes.
autoregressive process A type of stochastic process.
autoregressive moving-average process A type of stochastic process.
average option An Asian option.
average price option An average rate option
average rate option A form of Asian option whose payoff is linked to the average underlier value over a specified period.
average strike option A form of Asian option whose strike equals the average underlier value over a specified period.
AW Jones & Co. An early hedge fund formed in 1949.