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- Calendar Spread
- Buy one option, and write another with a
different expiration date.
- Call Option
- The right to buy an asset at a specified exercise
price on or before a specified expiration date.
- Call Protection
- An initial period during which a callable
bond may not be called.
- Callable Bond
- A bond that the issuer may repurchase at a
given price in some specified period.
- Capital Allocation Decision
- Allocation of invested funds
between risk‐free assets versus the risky portfolio.
- Capital Allocation Line (CAL)
- A graph showing all
feasible risk‐return combinations of a risky and risk‐free
- Capital Gains
- The amount by which the sale price of a
security exceeds the purchase price.
- Capital Market Line (CML)
- A capital allocation line provided by the market index portfolio.
- Capital Markets
- Includes longer‐term, relatively riskier
- Cash Equivalents
- Short-term money-market securities.
- Cash Flow Matching
- A form of immunization, matching
cash flows from a bond portfolio with an obligation.
- Cash Ratio
- Measure of liquidity of a firm. Ratio of cash and
marketable securities to current liabilities.
- Cash Settlement
- The provision of some futures contracts
that requires not delivery of the underlying assets (as in
agricultural futures) but settlement according to the cash
value of the asset.
- Cash/Bond Selection
- Asset allocation in which the choice
is between short‐term cash equivalents and longer‐term
- Certainty Equivalent Rate
- The certain return providing the
same utility as a risky portfolio.
- Certificate of Deposit
- A bank time deposit.
- Established by exchanges to facilitate
transfer of securities resulting from trades. For options and
futures contracts, the clearinghouse may interpose itself as a
middleman between two traders.
- Closed-end (Mutual) Fund
- A fund whose shares are traded
through brokers at market prices; the fund will not redeem
shares at their net asset value. The market price of the fund
can differ from the net asset value.
- An options strategy that brackets the value of a
portfolio between two bounds.
- A specific asset pledged against possible default
on a bond. Mortgage bonds are backed by claims on
property. Collateral trust bonds are backed by claims on
other securities. Equipment obligation bonds are backed by
claims on equipment.
- Collateralized Debt Obligation (CDO)
- A pool of loans sliced
into several tranches with different levels of risk.
- Collateralized Mortgage Obligation (CMO)
- A mortgage
pass‐through security that partitions cash·flows from
underlying mortgages into classes called tranches
that receive principal payments according to stipulated
- Commercial Paper
- Short-term unsecured debt issued by
- Common Stock
- Equities, or equity securities, issued as
ownership shares in a publicly held corporation. Shareholders
have voting rights and may receive dividends based on
their proportionate ownership.
- Comparison Universe
- The collection of money managers of
similar investment style used for assessing relative
performance of a portfolio manager.
- Complete Portfolio
- The entire portfolio, including risky and risk‐free assets.
- Conditional Tall Expectation
- Expectation of a random variable
conditional on its fa11ing below some threshold value.
Often used as a measure of down‐side risk.
- Confidence Index
- Ratio of the yield of top‐rated corporate
bonds to the yield on intermediate‐grade bonds.
- Notion that investors are too slow to update
their beliefs in response to new evidence.
- Constant-growth Model
- A form of the dividend discount
model that assumes dividends will grow at a constant rate.
- Contango Theory
- Holds that the futures price must exceed
the expected future spot price.
- Contingent Claim
- Claim whose value is directly dependent
on or is contingent on the value of some underlying
- Contingent Immunization
- A mixed passive-active
strategy that immunizes a portfolio if necessary to guarantee
a minimum acceptable return but otherwise allows active
- Convergence Arbitrage
- A bet that two or more prices are
out of alignment and that profits can be made when the
prices converge back to proper relationship.
- Convergence Property
- The convergence of futures prices
and spot prices at the maturity of the futures contract.
- Convertible Bond
- A bond with an option allowing the
bondholder to exchange the bond for a specified number
of shares of common stock in the firm. A conversion ratio
specifies the number of shares. The market conversion price
is the current value of the shares for which the bond may
be exchanged. The conversion premium is the excess of the
bond's value over the conversion price.
- The curvature of the price‐yield relationship of
- Corporate Bonds
- Long‐term debt issued by private
corporations typically paying semiannual coupons and
returning the face value of the bond at maturity.
- Correlation Coefficient
- A statistic in which the covariance
is scaled to a value between -1 (perfect negative
correlation) and + 1 (perfect positive correlation).
- Cost-of-carry Relationship
- See spot-futures-parity theorem.
- Country Selection
- A type of active international management
that measures the contribution to performance
attributable to investing in the better‐performing stock
markets of the world.
- Coupon Rate
- A bond's interest payments per dollar of par
- A measure of the degree to which returns on
two risky assets move in tandem. A positive covariance
means that asset returns move together. A negative
covariance means they vary inversely.
- Covered Call
- A combination of selling a call on a stock
together with buying the stock.
- Covered Interest Arbitrage Relationship
- See interest rate
- Credit Default Swap
- A derivative contract in which one
party sells insurance concerning the credit risk of another
- Credit Enhancement
- Purchase of the financial guarantee of
a large insurance company to raise funds.
- Credit Risk
- Default risk.
- Cross Hedge
- Hedging a position in one asset using futures
on another commodity.
- Cumulative Abnormal Return
- See abnormal return.
- Currency Selection
- Asset allocation in which the
investor chooses among investments denominated in
- Current Ratio
- A ratio representing the ability of the firm
to pay off its current liabilities by liquidating current assets
(current assets/current liabilities).
- Current Yield
- A bond's annual coupon payment divided by
its price. Differs from yield to maturity.
- Cyclical Industries
- Industries with above‐average
sensitivity to the state of the economy.