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Structured Note
A structured note is an over the counter derivative with hybrid security features which combine payoffs from multiple ordinary securities, typically a stock or bond plus a derivative. When the product depends on a credit payoff, it is called a credit-linked note. Since no such security exists outside of the sponsor creating this hybrid, the creditworthiness of this structured note depends on the strength of the sponsor. Two typical use cases: *A simple example of a structured note would be a five-year bond tied together with an option contract. The addition of the option contract changes the security's risk/return profile to make it more tailored to an investor's comfort zone. This makes it possible to invest in an asset class that would otherwise be considered too risky. *From the investor's point of view, a structured note might look like this: I agree to a three-year contract with a bank. I give the bank $100. The money will be indexed to the S&P 500. In three years, if the S ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Over-the-counter (finance)
Over-the-counter (OTC) or off-exchange trading or pink sheet trading is done directly between two parties, without the supervision of an exchange (organized market), exchange. It is contrasted with exchange trading, which occurs via exchanges. A stock exchange has the benefit of facilitating liquidity, providing transparency, and maintaining the current market price. In an OTC trade, the price is not necessarily publicly disclosed. OTC trading, as well as exchange trading, occurs with commodities, financial instruments (including stocks), and derivative (finance), derivatives of such products. Products traded traditional stock exchanges, and other regulated bourse platforms, must be well standardized. This means that exchanged deliverables match a narrow range of quantity, quality, and identity which is defined by the exchange and identical to all transactions of that product. This is necessary for there to be transparency in stock exchange-based equities trading. The OTC ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Capital Guarantee
A capital guarantee product means that when an investor buys, or "enters", this specific structured product he is guaranteed to get back at maturity a part or the totality of the money he invested on day one. Examples of capital guarantees include bond plus option, usually bond plus call, and constant proportion portfolio insurance Constant proportion portfolio investment (CPPI) is a trading strategy that allows an investor to maintain an exposure to the upside potential of a risky asset while providing a capital guarantee against downside risk. The outcome of the CPPI stra .... Derivatives (finance) {{Econ-stub ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Derivatives (finance)
The derivative of a function is the rate of change of the function's output relative to its input value. Derivative may also refer to: In mathematics and economics *Brzozowski derivative in the theory of formal languages *Formal derivative, an operation on elements of a polynomial ring which mimics the form of the derivative from calculus * Radon–Nikodym derivative in measure theory *Derivative (set theory), a concept applicable to normal functions *Derivative (graph theory), an alternative term for a line graph deva *Derivative (finance), a contract whose value is derived from that of other quantities *Derivative suit or derivative action, a type of lawsuit filed by shareholders of a corporation In science and engineering *Derivative (chemistry), a type of compound which is a product of the process of derivatization *Derivative (linguistics), the process of forming a new word on the basis of an existing word, e.g. happiness and unhappy from happy * Aeroderivative gas turbine, ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Market-linked Note
A structured product, also known as a market-linked investment, is a pre-packaged structured finance investment strategy based on a single security, a basket of securities, options, indices, commodities, debt issuance or foreign currencies, and to a lesser extent, derivatives. Structured products are not homogeneous — there are numerous varieties of derivatives and underlying assets — but they can be classified under the aside categories. Typically, a desk will employ a specialized "structurer" to design and manage its structured-product offering. Formal definitions U.S. Securities and Exchange Commission (SEC) Rule 434 (regarding certain prospectus deliveries) defines structured securities as "securities whose cash flow characteristics depend upon one or more indices or that have embedded forwards or options or securities where an investor's investment return and the issuer's payment obligations are contingent on, or highly sensitive to, changes in the value of underlying ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Inverse Floating Rate Note
An inverse floating rate note, or simply an inverse floater, is a type of Bond (finance), bond or other type of debt instrument used in finance whose Coupon (bond), coupon rate has an inverse relationship to short-term interest rates (or its reference rate). With an inverse floater, as interest rates rise the coupon rate falls. The basic structure is the same as an ordinary floating rate note except for the direction in which the coupon rate is adjusted. These two structures are often used in concert. As short-term interest rates fall, both the market price and the Yield (finance), yield of the inverse floater increase. This link often magnifies the fluctuation in the bond's price. However, in the opposite situation, when short-term interest rates rise, the value of the bond can drop significantly, and holders of this type of instrument may end up with a security that pays little interest and for which the market will pay very little. Thus, interest rate risk is magnified and contai ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Floating Rate Note
Floating rate notes (FRNs) are bonds that have a variable coupon, equal to a money market reference rate, like LIBOR or federal funds rate, plus a quoted spread (also known as quoted margin). The spread is a rate that remains constant. Almost all FRNs have quarterly coupons, i.e. they pay out interest every three months. At the beginning of each coupon period, the coupon is calculated by taking the fixing of the reference rate for that day and adding the spread. A typical coupon would look like 3 months USD LIBOR +0.20%. Issuers In the United States, banks and financial service companies have been among the largest issuers of these securities. The U.S. Treasury began issuing them in 2014, and government sponsored enterprises (GSEs) such as the Federal Home Loan Banks, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) are important issuers. In Europe, the main issuers are banks. Variations Some FRNs have special f ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Equity-linked Note
An equity-linked note (ELN) is a debt instrument, usually a bond, that differs from a standard fixed-income security in that the final payout is based on the return of the ''underlying equity'', which can be a single stock, basket of stocks, or an equity index. Equity-linked notes are a type of structured products. Most equity-linked notes are not traded on the secondary market and are designed to be kept to maturity. However, the issuer or arranger of the notes may offer to buy back the notes. Unlike the maturity payout, the buy-back price before maturity may be below the amount invested in first place. Equity-linked notes can be referred to one of the following: Equity-linked put option An equity-linked put option (ELPO) is a structured product composed of a deposit, and a short put option. The underlying stock, exercise price and maturity date determine the principal and interest of the product. The face value of the product is the exercise price times the trading unit, for ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Credit-linked Note
A credit-linked note (CLN) is a form of funded credit derivative. It is structured as a security with an embedded credit default swap allowing the issuer to transfer a specific credit risk to credit investors. The issuer is not obligated to repay the debt if a specified event occurs. This eliminates a third-party insurance provider. It is a structured note issued by a special purpose company or trust, designed to offer investors par value at maturity unless the referenced entity defaults. In the case of default, the investors receive a recovery rate. The trust will also have entered into a default swap with a dealer. In case of default, the dealer will pay the trust par minus the recovery rate, in exchange for an annual fee which is passed on to the investors in the form of a higher yield on their note. The purpose of the arrangement is to pass the risk of specific default onto investors willing to bear that risk in return for the higher yield it makes available. The CLNs themse ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Structured Product
A structured product, also known as a market-linked investment, is a pre-packaged structured finance investment strategy based on a single Security (finance), security, a basket of securities, Option (finance), options, Index (economics), indices, commodities, debt issuance or foreign Currency, currencies, and to a lesser extent, Derivative (finance), derivatives. Structured products are not homogeneous — there are numerous varieties of derivatives and underlying assets — but they can be classified under the aside categories. Typically, a trading desk, desk will employ a specialized "structurer" to design and manage its structured-product offering. Formal definitions U.S. Securities and Exchange Commission (SEC) Rule 434 (regarding certain prospectus deliveries) defines structured securities as "securities whose cash flow characteristics depend upon one or more indices or that have Embedded option, embedded forwards or options or securities where an investor's investment return ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Contingent Claim
In finance, a contingent claim is a derivative whose future payoff depends on the value of another “underlying” asset,Dale F. Gray, Robert C. Merton and Zvi Bodie. (2007). Contingent Claims Approach to Measuring and Managing Sovereign Credit Risk. ''Journal of Investment Management'', Vol. 5, No. 4, (2007), pp. 5–28 M. J. Brennan (1979). The Pricing of Contingent Claims in Discrete Time Models. ''The Journal of Finance''. Vol. 34, No. 1 (Mar., 1979), pp. 53-68 or more generally, that is dependent on the realization of some uncertain future event.Sean Ross What kinds of derivatives are types of contingent claims? Investopedia These are so named, since there is only a payoff under certain contingencies."Approaches to valuation", Ch2. in Aswath Damodaran (2012). ''Investment Valuation: Tools and Techniques for Determining the Value of any Asset''. John Wiley & Sons. Any derivative instrument that is not a contingent claim is called a forward commitment. The prototypical c ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
S&P 500
The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices. As of December 31, 2020, more than $5.4 trillion was invested in assets tied to the performance of the index. The S&P 500 index is a free-float weighted/capitalization-weighted index. As of August 31, 2022, the nine largest companies on the list of S&P 500 companies accounted for 27.8% of the market capitalization of the index and were, in order of highest to lowest weighting: Apple, Microsoft, Alphabet (including both class A & C shares), Amazon.com, Tesla, Berkshire Hathaway, UnitedHealth Group, Johnson & Johnson and ExxonMobil. The components that have increased their dividends in 25 consecutive years are known as the S&P 500 Dividend Aristocrats. The index is one of the factors in computation of the Conference Board Leading Economic Index ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Derivative (finance)
In finance, a derivative is a contract that ''derives'' its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, and is often simply called the "underlying". Derivatives can be used for a number of purposes, including insuring against price movements ( hedging), increasing exposure to price movements for speculation, or getting access to otherwise hard-to-trade assets or markets. Some of the more common derivatives include forwards, futures, options, swaps, and variations of these such as synthetic collateralized debt obligations and credit default swaps. Most derivatives are traded over-the-counter (off-exchange) or on an exchange such as the Chicago Mercantile Exchange, while most insurance contracts have developed into a separate industry. In the United States, after the financial crisis of 2007–2009, there has been increased pressure to move derivatives to trade on exchanges. Derivatives are one of the ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
