sales load A charge applied at the time an investor buys or sells shares in an open-end mutual fund to cover marketing expenses or commissions.

samurai A foreign bond issued in Japan.

Sarbanes-Oxley Act of 2002 US legislation enacted in response to the accounting scandals of 2001-2002.

scenario analysis Formalized "what if" analysis typically performed as a part of asset-liability management or corporate risk management.

SEC Securities and Exchange Commission

second mortgage bond A subordinate mortgage bond.

secondary capital A bank's transient capital.

secured debt Collateralized debt.

secured lending Collateralized lending.

Securities Act of 1933 US legislation to regulate the primary (underwriting) market for securities.

Securities and Exchange Commission The primary regulator of US securities markets.

Securities Exchange Act of 1934 US legislation to regulate the secondary market for securities.

securities firm A firm that brokers or sells securities.

Securities Investor Protection Corporation A corporation established by the US Federal Government to insure investors accounts at brokerage firms.

securities lending The lending of securities, usually for a fee.

securitization A financial transaction in which assets are pooled and securities representing interests in the pool are issued.

securitize To legally structure or package a financial interest as a security.

security A financial instrument such as a stock or bond.

self regulating organization In the United States, a private organization that performs a regulatory function under the supervision of the SEC.

semi-strong efficiency A market has semi-strong efficiency if prices fully reflect all readily-available public information—past prices, economic news, earnings reports, etc.

semi-variance An alternative to variance that focuses on negative values of a distribution.

semiannual compounding Compounding based on semiannual crediting of interest.

senior claim A claim on a corporation's assets that has higher priority than all or most other claims.

separation theorem The result that portfolio composition and portfolio leveraging are two unrelated decisions.

sequential pay CMO bond A type of CMO bond.

servicing agent The party who performs servicing on collateral of a securitization.

servicing fee A fee subtracted from the cash flows of a securitization to cover the cost of servicing.

servicing rights Rights to process payments and perform related tasks associated with the collateral of a securitization.

set An unordered collection of elements.

settlement In finance, performance on a contractual obligation.

settlement date The date on which a trade settles—delivery of what is being traded in exchange for payment.

settlement price A price set for a futures contract at the close of trading for the purpose of calculating margin payments.

settlement risk A form of credit risk that arises at the settlement of a transaction.

share 1) An ownership interest in something. 2) A unit of stock.

shareholder An owner of stock.

Sharpe ratio A risk-adjusted performance metric used in investment management.

Sharpe, William 1990 Nobel Prize winner who published the original capital asset pricing model.

shelf registration A flexible form of SEC registration applicable to medium-term notes.

short (n.) a short seller; (v.) to sell short; (adj.) having a net negative position in an asset or otherwise having negative exposure to some financial quantity.

short position A position that is short an asset or otherwise has negative exposure to some financial quantity.

short sale Sale of a borrowed security.

short seller Someone who sells an asset short.

short squeeze A speculative trading strategy that takes advantage of short sellers' need to eventually buy back assets they are short.

short volatility Holding a position that has negative vega.

Siegel, Martin Kidder Peabody investment banker who became embroiled in the 1980's insider trading scandals.

sight draft A draft on which payment is to be made immediately.

simulation analysis Scenario analysis performed as a Monte Carlo analysis.

simple interest A method of crediting interest in which interest is not earned on interest.

simple random walk A random walk whose increments form a strong white noise whose terms only take on the values 1 or –1, each with probability 0.5.

simple return A standard metric of return.

singular positive semidefinite matrix A matrix that is positive semidefinite but not positive definite.

singular random vector A random vector whose covariance matrix is singular.

sinking fund A provision that requires an issuer of bonds or preferred stock to retire some of the issue each year.

sinking fund redemption A provision requiring the periodic call of securities to satisfy a sinking fund provision.

SIPC Securities Investor Protection Corporation.

skew 1) the probabilistic notion of skewness; 2) volatility skew.

skewness A parameter that describes a lack of symmetry of a probability distribution.

Skilling, Jeffrey Former President and CEO of energy trading firm Enron, which failed spectacularly in 2001.

soft dollars A sometimes controversial inducement brokers offer investment managers to place trades through them.

Solvency II European directive specifying capital requirements for insurers.

Solvency Ratio Directive 1989 European legislation specifying capital requirements for the non-trading portion of a bank's balance sheet.

South Sea Bubble An English stock bubble that burst in 1720.

sox Sarbanes-Oxley Act of 2002

SPE Special purpose entity.

special purpose entity Special purpose vehicle.

special purpose vehicle A firm or other legal entity established to facilitate off-balance sheet financing.

special security A security for which there is particular demand in the repo market.

specific risk That component of an instrument or portfolio's market risk that is uncorrelated with the overall market.

speculative grade bond Junk bond.

spline interpolation A category of interpolation techniques.

split-coupon bond Deferred-coupon bond.

spot curve A graph of spot interest rates for different maturities.

spot loan A loan that commences spot.

spot-next A loan commencing spot and lasting one trading day.

spot price The price at which trades for spot settlement transact.

spot rate The rate of interest on a spot loan that accumulates interest to maturity.

spot settlement Settlement of a trade almost immediately—within a number of trading days that is standardized for each market.

spot trade A trade for spot settlement.

spread 1) a difference between two variables—see Spreads; 2) a long-short futures position—see Futures Spread; and 3) a position comprising two or more options—see Options Spread; 4) see also interest rate spreads.

spread option An option on a spread.

spread risk Risk due to exposure to some spread.

spread trading Trading of futures spreads.

SPV Special purpose vehicle.

square root of time rule A formula for computing a volatility for one unit of time from a volatility for a different unit of time.

SRO self regulating organization

SSM Single monthly mortality.

stable distribution A probability distribution that remains the same under addition.

stable Paretian distribution A non-normal stable distribution.

standard Cauchy distribution A Cauchy distribution with position parameter 0 and dispersion parameter 1.

standard deviation A parameter describing the dispersion of a probability distribution.

standard normal distribution The normal distribution with mean 0 and variance 1.

standardized stable distribution A stable distribution whose scale and location parameters are 1 and 0.

stat arb Statistical arbitrage.

stated value Par value.

static CDO A CDO whose collateral is not actively managed by a portfolio manager.

stationarity Covariance stationarity.

statistical arbitrage Market neutral trading strategy used in equity markets and employing time series analysis.

statutory underwriter An investor who unintentionally acts as a securities underwriter under the 1933 Securities Act.

step-up bond A bond that pays a reduced coupon during its first few years.

sticky delta A model whereby volatility skew is stable relative to option deltas.

sticky strike A model whereby volatility skew is stable relative to option strikes.

stochastic Random.

stochastic calculus approach An informal name for derivatives pricing models that employ stochastic calculus with risk neutral valuation or other techniques based upon modeling future asset values.

stochastic process A model for a time series.

stochastic volatility model A category of conditionally heteroskedastic stochastic processes.

stock A security representing an ownership interest in a corporation.

stock picking The act of picking individual stocks to include in an investment portfolio.

stockholder An owner of stock.

stop-loss limit A market risk limit based upon incurred mark-to-market loss.

stop-out yield The yield to maturity at which auctioned Treasury securities are issued.

straddle An options spread comprising a long put and a long call both with the same strike price.

Strafaci, Edward Manager of the Lipper Convertible Fund, who misrepresented fund losses as gains.

strangle An options spread comprising a long put and a long call, both with out-of-the-money strike prices.

stratified sampling A technique of variance reduction for the Monte Carlo method.

stress testing A simple form of scenario analysis typically used to assess market risk.

strict stationarity A property of some stochastic processes.

strike price The price specified by an option at which an asset is to be purchased or sold.

strip A zero-coupon bond "stripped" from the cash flows of a Treasury security.

STRIPS Program A US Department of Treasury program for "stripping" coupon-bearing Treasury securities to form zero-coupon securities.

strong efficiency A market has strong efficiency if prices fully reflect all public and privileged information.

strong white noise Independent white noise.

structural credit risk model Asset value model.

subcustodian A custodian who holds securities locally on behalf of foreign investors.

submartingale A type of stochastic process that may have positive drift.

subordinate PAC bond A pack bond that is paired with a super PAC bond to take most of the prepayment risk.

subordinated claim A claim on a corporation's assets that has lower priority than all or most other claims.

Sumitomo Corp. debacle A 1996 rogue trader scandal.

super-efficient portfolio A notion from portfolio theory.

super PAC bond A form of PAC bond that is structured to have less prepayment risk than an accompanying subordinate PAC bond.

supermartingale A type of stochastic process that may have negative drift.

support bond A bond that takes most of the prepayment risk in a PAC CMO structure.

supremum The supremum of a real set A is the smallest real number such that all elements of A are less than or equal to that number.

survival function Probability of avoiding default expressed as a function of time.

swap A derivative whereby two parties exchange cash flow streams.

swap curve A yield curve of swap rates.

swap rate The fixed rate quoted on a vanilla interest rate swap.

swaption An option on a swap.

syndicate The group of lenders in a syndicated loan.

syndicated lending A form of lending in which a group of lenders collectively extend a loan to a single borrower.

syndicated loan A loan made collectively by a group of lenders to a single borrower.

synthetic CDO A CDO that creates credit exposures for investors primarily through CDSs.

systematic risk That component of an instrument or portfolio's market risk that is correlated with the overall market.

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