Definition of Autoregressive

Autoregressive

Using past data to predict future data.

Extrapolative statistical models

Models that apply a formula to historical data and project results for a
future period. Such models include the simple linear trend model, the simple exponential model, and the
simple autoregressive model.

Arbitrage-free option-pricing models

Yield curve option-pricing models.

Deterministic models

Liability-matching models that assume that the liability payments and the asset cash
flows are known with certainty. Related: Compare stochastic models

Stochastic models

Liability-matching models that assume that the liability payments and the asset cash flows
are uncertain. Related: Deterministic models.

Yield curve option-pricing models

models that can incorporate different volatility assumptions along the
yield curve, such as the Black-Derman-Toy model. Also called arbitrage-free option-pricing models.

statistical process control (SPC)

the use of control techniques that are based on the theory that a process has natural variations in it over time, but uncommon variations
are typically the points at which the process produces "errors", which can be defective goods or poor service

percentage of sales models

Planning model in which sales forecasts are the driving variables and most other variables are
proportional to sales.

economic components model

Abrams’ model for calculating DLOM based on the interaction of discounts from four economic components.
This model consists of four components: the measure of the economic impact of the delay-to-sale, monopsony power to buyers, and incremental transactions costs to both buyers and sellers.

Gordon model

present value of a perpetuity with growth.
The end-ofyear Gordon model formula is: 1/(r - g)
and the midyear formula is: SQRT(1 + r)/(r - g).

log size model

Abrams’ model to calculate discount rates as a function of the logarithm of the value of the firm.

PPF (periodic perpetuity factor)

a generalization formula invented by Abrams that is the present value of regular but noncontiguous cash flows that have constant growth to perpetuity.

QMDM (quantitative marketability discount model)

model for calculating DLOM for minority interests r the discount rate

Annualized holding period return

The annual rate of return that when compounded t times, would have
given the same t-period holding return as actually occurred from period 1 to period t.

Arbitrage-free option-pricing models

Yield curve option-pricing models.

Asset pricing model

A model for determining the required rate of return on an asset.

Asset pricing model

A model, Such as the Capital Asset Pricing model (CAPM), that determines the required
rate of return on a particular asset.

Average collection period, or days' receivables

The ratio of accounts receivables to sales, or the total
amount of credit extended per dollar of daily sales (average AR/sales * 365).

Binomial option pricing model

An option pricing model in which the underlying asset can take on only two
possible, discrete values in the next time period for each value that it can take on in the preceding time period.

Black-Scholes option-pricing model

A model for pricing call options based on arbitrage arguments that uses
the stock price, the exercise price, the risk-free interest rate, the time to expiration, and the standard deviation
of the stock return.

Capital asset pricing model (CAPM)

An economic theory that describes the relationship between risk and
expected return, and serves as a model for the pricing of risky securities. The CAPM asserts that the only risk
that is priced by rational investors is systematic risk, because that risk cannot be eliminated by diversification.
The CAPM says that the expected return of a security or a portfolio is equal to the rate on a risk-free security
plus a risk premium.

Compounding period

The length of the time period (for example, a quarter in the case of quarterly
compounding) that elapses before interest compounds.

Constant-growth model

Also called the Gordon-Shapiro model, an application of the dividend discount
model which assumes (1) a fixed growth rate for future dividends and (2) a single discount rate.

Conventional project

A project with a negative initial cash flow (cash outflow), which is expected to be
followed by one or more future positive cash flows (cash inflows).

Credit period

The length of time for which the customer is granted credit.

Currency future

A financial future contract for the delivery of a specified foreign currency.

Deferred futures

The most distant months of a futures contract. A bond that sells at a discount and does not
pay interest for an initial period, typically from three to seven years. Compare step-up bond and payment-inkind
bond.

Deterministic models

Liability-matching models that assume that the liability payments and the asset cash
flows are known with certainty. Related: Compare stochastic models

Detrend

To remove the general drift, tendency or bent of a set of statistical data as related to time.

Discount period

The period during which a customer can deduct the discount from the net amount of the bill
when making payment.

Discounted dividend model (DDM)

A formula to estimate the intrinsic value of a firm by figuring the
present value of all expected future dividends.

Discounted payback period rule

An investment decision rule in which the cash flows are discounted at an
interest rate and the payback rule is applied on these discounted cash flows.

Dividend discount model (DDM)

A model for valuing the common stock of a company, based on the
present value of the expected cash flows.

Dividend growth model

A model wherein dividends are assumed to be at a constant rate in perpetuity.

Electronic data interchange (EDI)

The exchange of information electronically, directly from one firm's
computer to another firm's computer, in a structured format.

Evaluation period

The time interval over which a money manager's performance is evaluated.

Expected future cash flows

projected future cash flows associated with an asset of decision.

Expected future return

The return that is expected to be earned on an asset in the future. Also called the
expected return.

Factor model

A way of decomposing the factors that influence a security's rate of return into common and
firm-specific influences.

Financial future

A contract entered into now that provides for the delivery of a specified asset in exchange
for the selling price at some specified future date.

Flat benefit formula

Method used to determine a participant's benefits in a defined benefit plan by
multiplying months of service by a flat monthly benefit.

Formula basis

A method of selling a new issue of common stock in which the SEC declares the registration
statement effective on the basis of a price formula rather than on a specific range.

Future

A term used to designate all contracts covering the sale of financial instruments or physical
commodities for future delivery on a commodity exchange.

Future investment opportunities

The options to identify additional, more valuable investment opportunities
in the future that result from a current opportunity or operation.

Future value

The amount of cash at a specified date in the future that is equivalent in value to a specified
sum today.

Futures

A term used to designate all contracts covering the sale of financial instruments or physical
commodities for future delivery on a commodity exchange.

Futures commission merchant

A firm or person engaged in soliciting or accepting and handling orders for
the purchase or sale of futures contracts, subject to the rules of a futures exchange and, who, in connection
with Such solicitation or acceptance of orders, accepts any money or securities to margin any resulting trades
or contracts. The FCM must be licensed by the CFTC. Related: commission house , omnibus account

Futures contract

Agreement to buy or sell a set number of shares of a specific stock in a designated future
month at a price agreed upon by the buyer and seller. The contracts themselves are often traded on the futures
market. A futures contract differs from an option because an option is the right to buy or sell, whereas a
futures contract is the promise to actually make a transaction. A future is part of a class of securities called
derivatives, so named because Such securities derive their value from the worth of an underlying investment.

Futures contract multiple

A constant, set by an exchange, which when multiplied by the futures price gives
the dollar value of a stock index futures contract.

Futures market

A market in which contracts for future delivery of a commodity or a security are bought or sold.

Futures option

An option on a futures contract. Related: options on physicals.

Futures price

The price at which the parties to a futures contract agree to transact on the settlement date.

Garmen-Kohlhagen option pricing model

A widely used model for pricing foreign currency options.

Historical exchange rate

An accounting term that refers to the exchange rate in effect when an asset or
liability was acquired.

Holding period

Length of time that an individual holds a security.

Holding period return

The rate of return over a given period.

Independent project

A project whose acceptance or rejection is independent of the acceptance or rejection of
other projects.

Index model

A model of stock returns Using a market index Such as the S&P 500 to represent common or
systematic risk factors.

Linear programming

Technique for finding the maximum value of some equation subject to stated linear constraints.

Linear regression

A statistical technique for fitting a straight line to a set of data points.

Log-linear least-squares method

A statistical technique for fitting a curve to a set of data points. One of the
variables is transformed by taking its logarithm, and then a straight line is fitted to the transformed set of data
points.

London International Financial Futures Exchange (LIFFE)

A London exchange where Eurodollar futures
as well as futures-style options are traded.

London International Financial Futures Exchange (LIFFE)

London exchange where Eurodollar futures as well as futures-style options are traded.

Manufactured housing securities (MHSs)

Loans on manufactured homes - that is, factory-built or
prefabricated hoUsing, including mobile homes.

Market model

This relationship is sometimes called the single-index model. The market model says that the
return on a security depends on the return on the market portfolio and the extent of the security's
responsiveness as measured, by beta. In addition, the return will also depend on conditions that are unique to
the firm. Graphically, the market model can be depicted as a line fitted to a plot of asset returns against
returns on the market portfolio.

Modeling

The process of creating a depiction of reality, Such as a graph, picture, or mathematical
representation.

Most distant futures contract

When several futures contracts are considered, the contract settling last.
Related: nearby futures contract

Multiperiod immunization

A portfolio strategy in which a portfolio is created that will be capable of
satisfying more than one predetermined future liability regardless if interest rates change.

National Futures Association (NFA)

The futures industry self regulatory organization established in 1982.

Nearby futures contract

When several futures contracts are considered, the contract with the closest
settlement date is called the nearby futures contract. The next futures contract is the one that settles just after
the nearby futures contract. The contract farthest away in time from settlement is called the most distant
futures contract.

Net period

The period of time between the end of the discount period and the date payment is due.

Net present value of future investments

The present value of the total sum of NPVs expected to result from
all of the firm's future investments.

Neutral period

In the Euromarket, a period over which Eurodollars are sold is said to be neutral if it does not
start or end on either a Friday or the day before a holiday.

Next futures contract

The contract settling immediately after the nearby futures contract.

Pie model of capital structure

A model of the debt/equity ratio of the firms, graphically depicted in slices of
a pie that represent the value of the firm in the capital markets.

Project loan certificate (PLC)

A primary program of Ginnie Mae for securitizing FHA-insured and coinsured
multifamily, hospital, and nursing home loans.

Project loan securities

Securities backed by a variety of FHA-insured loan types - primarily multi-family
apartment buildings, hospitals, and nursing homes.

Project loans

Usually FHA-insured and HUD-guaranteed mortgages on multiple-family hoUsing complexes,
nursing homes, hospitals, and other development types.

Project notes (PNs)

project notes are issued by municipalities to finance federally sponsored programs in
urban renewal and hoUsing and are guaranteed by the U.S. Department of HoUsing and Urban Development.
project financing A form of asset-based financing in which a firm finances a discrete set of assets on a standalone
basis.
projected benefit obligation (PBO) A measure of a pension plan's liability at the calculation date assuming
that the plan is ongoing and will not terminate in the foreseeable future. Related:accumulated benefit obligation.

Projected maturity date

With CMOs, final payment at the end of the estimated cash flow window.

Simple prospect

An investment opportunity where a certain initial wealth is placed at risk and only two
outcomes are possible.

Single factor model

A model of security returns that acknowledges only one common factor.
See: factor model.

Single index model

A model of stock returns that decomposes influences on returns into a systematic factor,
as measured by the return on the broad market index, and firm specific factors.

Simple compound growth method

A method of calculating the growth rate by relating the terminal value to
the initial value and assuming a constant percentage annual rate of growth between these two values.

Simple interest

Interest calculated only on the initial investment. Related:compound interest.

Simple linear regression

A regression analysis between only two variables, one dependent and the other explanatory.

Simple linear trend model

An extrapolative statistical model that asserts that earnings have a base level and
grow at a constant amount each period.

Simple moving average

The mean, calculated at any time over a past period of fixed length.

Single-index model

Related: market model

Spot futures parity theorem

Describes the theoretically correct relationship between spot and futures prices.
Violation of the parity relationship gives rise to arbitrage opportunities.

Stochastic models

Liability-matching models that assume that the liability payments and the asset cash flows
are uncertain. Related: Deterministic models.

Subperiod return

The return of a portfolio over a shorter period of time than the evaluation period.

Synchronous data

data available at the same time. In testing option-pricing models, the price of the option
and of the underlying should be synchronous, representing the same moment in the market.

T-period holding-period return

The percentage return over the T-year period an investment lasts.

Theoretical futures price

Also called the fair price, the equilibrium futures price.

Trend

The general direction of the market.

Two-factor model

Black's zero-beta version of the capital asset pricing model.

Two-state option pricing model

An option pricing model in which the underlying asset can take on only two
possible (discrete) values in the next time period for each value it can take on in the preceding time period.
Also called the binomial option pricing model.

Unbiased predictor

A theory that spot prices at some future date will be equal to today's forward rates.

Unit benefit formula

Method used to determine a participant's benefits in a defined benefit plan by
multiplying years of service by the percentage of salary.

Value-at-Risk model (VAR)

Procedure for estimating the probability of portfolio losses exceeding some
specified proportion based on a statistical analysis of historical market price trends, correlations, and volatilities.

Waiting period

Time during which the SEC studies a firm's registration statement. During this time the firm
may distribute a preliminary prospectus.

Warehousing

The interim holding period from the time of the closing of a loan to its subsequent marketing to
capital market investors.

Workout period

Realignment period of a temporary misaligned yield relationship that sometimes occurs in
fixed income markets.

Yield curve option-pricing models

models that can incorporate different volatility assumptions along the
yield curve, Such as the Black-Derman-Toy model. Also called arbitrage-free option-pricing models.

Accounting period

The period of time for which financial statements are produced – see also financial year.

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