Glossary - A
The choice made by a holder of a covered warrant to allow it to expire without exercise.
Absolute percentage growth
Expresses the growth of a fund's value as a percentage over the specified period. A negative figure would indicate a decline.
An interest rate swap under which a counterparty pays a vanilla floating reference rate, usually three or six month LIBOR, and receives LIBOR plus a significant spread. Interest payments to this counterparty will only accrue on days when rates stay within a certain range dictated by preset upper and lower boundaries.
A binary accrual swap is a contract in which any breach of the range boundaries cancels all further potential for accrual. A simple accrual swap is constructed from a conventional interest rate swap plus a short binary strangle with a maturity equal to the LIBOR fixings.
Versions are available where the upper and lower ranges step up or down over the life of the swap, and where the holder can reset or cancel the range at specified times.
Actively managed funds
Funds in which the fund manager uses his or her professional judgment to decide what to buy and sell, with the aim of outperforming the relevant benchmark. Contrasts with index funds.
See American depositary receipt
See Annual General Meeting
See Alternative Investment Market
All or nothing
When placing a trade above normal market size via a personal telephone service, you may be asked whether you want to trade 'all or nothing' or 'as many as possible'. All or nothing means that a broker will endeavour to trade your entire instruction. If this is not possible, your order will not be executed.
See letter of allotment
A measure of the risk adjusted performance of an investment fund. The alpha will be positive where the average return on the investment is greater than expected and negative where it is less than expected.
Alternative Investment Market (AIM)
The London Stock Exchange's market for growing and smaller companies. Created in 1995, it enables companies to attain a listing that is both more affordable and doesn't require them to meet the stringent criteria for full quotation.
American depositary receipt (ADR)
An ADR is effectively a bearer document that allows American investors to own shares in foreign corporations. They are tradable receipts that show that the underlying shares are held on deposits by a bank in the corporation's home country. The bank collects dividends, pays local taxes and converts them to dollars for distribution to shareholders.
An expert in evaluating financial investments such as equities, bonds and Government stocks; undertaking investment research; and making recommendations to institutional and retail investors to buy, sell or hold. Most analysts specialise in a single industry or business sector.
Annual report and accounts
A statement of the financial condition of the company and its activities over the past financial year. Includes the company's profit and loss account, balance sheet, notes and statement of cash flow. All publicly listed companies are obliged to make these available to shareholders. They can be obtained from the company's website, by writing to the company's head office or via the broker who holds your nominee account.
An income guaranteed for life paid in return for handing over a lump sum. An annuity is bought at retirement by holders of most personal pension plans and members of money purchase company schemes.
The simultaneous purchase and sale of identical or equivalent financial instruments in order to benefit from a discrepancy in their price relationship. A person or institution engaging in arbitrage is known as an arbitrageur.
As many as possible
When placing a trade above normal market size via a broker you may be asked whether you want to trade 'all or nothing' or 'as many as possible'. As many as possible means that the broker will endeavour to trade as many as he or she can, up to the amount you have specified.
The correlation between changes in a single variable over different time periods. If a price is negatively autocorrelated, a move down in one period would suggest a move up in the next, and vice versa. If it were positively autocorrelated, a move down would suggest a move down in the following period as well, and vice versa.
ARCH processes have frequency distributions which have high peaks at the mean and fat tails, much like factual distributions. They are used commonly in modeling financial time series that exhibit time-varying volatility clustering – i.e. periods of swings followed by periods of relative calm. The generalised ARCH (GARCH) model is the most widely used.
Average strike option
An average strike option is a type of Asian option. Similar to a standard option, except that the strike price is taken to be the arithmetic average of the price of the underlying asset during the life of the option.