Glossary - P
Panel on Takeover and Mergers (PTM)
The body that ensures that takeovers and mergers are conducted fairly on behalf of all shareholders.
Paper offer
An offer of shares in the bidding company that may be ordinary, loan notes or another alternative.
Pari passu
This term is usually used to describe new issues of securities which have the same rights as similar issues already in existence. It means ‘equal in all respects’.
Parity
Has different meanings in different markets:
1. For options, parity is the condition on which an option’s value in the market is the same as its intrinsic value.
2. In the warrant market, parity can be positive or negative.
3. In regards to convertible bonds, parity is the market value of shares of common stock into which the convertible can be converted. It is calculated by multiplying the stock price by the conversion ratio.
Path dependant option
An option whose payoff is a function of the path that the underlying price has taken over the life of the option. This contrasts with straightforward European options, where the payoff is usually a function of the price of the underlying at only one point, the expiry date.
Path dependant options are typically not priced off analytical solutions; to arrive at a price for the discounted expected value of their terminal payoff over all possible paths, computationally intensive numerical methods are needed.
Many non-vanilla options are path-dependant, including: average rate options, average price options, average strike options, look back options, ladder options, shout options and periodic reset options.
P/E ratio
See price/earnings ratio
Pension fund / pension plan / pension scheme
A fund set up by a company, union, government entity, or other organisation to invest the financial contributions of members and employees, and pay out a retirement income, or pension, to those people when they reach retirement age.
Pension fund withdrawal
See income drawdown
PEP
See Personal Equity Plan
Perks
See benefits
Permanent interest bearing shares (PIBS)
Fixed interest bearing investments that are issued by building societies and listed on the London Stock Exchange.
Personal Equity Plan (PEP)
Former tax-efficient investment vehicles. PEPs ceased to exist from 6 April 2008 following regulatory changes. Clients can now enjoy tax-efficient investing through ISAs.
Personal pension
A tax-efficient way to accumulate savings for retirement. Contributions into a personal pension fund receive tax relief and a proportion of the eventual payout can be taken tax-free. They can be either individual arrangements or provided by an employer via group personal pensions, although the employer has no obligation to contribute to the latter (unlike an occupational pension).
Phased retirement
Where personal pension holders who do not wish to take their pension all at once stagger their purchase of annuities over several years.
Physical settlement
The seller of risk would on default of the reference obligation deliver to the buyer of risk the reference obligation in return for the payment of the notional amount by the buyer of risk.
Physically settled
Settlement of a warrant by the delivery or receipt of an actual underlying asset. This is the opposite of a cash settled warrant, which settles purely in cash.
PIBS
See permanent interest bearing shares
Placing
When a company’s broker contacts his or her own clients and offers shares to them. The general public will not necessarily be offered any shares.
PLUS
A UK quote-driven equity market service for listed and unlisted securities. The PLUS service is operated by Ofex and is authorised and regulated by the Financial Services Authority. Not classified as a Recognised Investment Exchange.
Poisson process
A useful process for describing events which happen independently and randomly in time, such as stock market crashes. It is frequently used as a component of jump diffusion processes to describe the occurrence of the discrete jumps.
Portfolio
A selection of different investments held by an investor.
Portfolio manager
A named individual who is responsible for the initial construction and the ongoing running of a client’s portfolios to meet investment goals agreed with the client.
Portfolio valuations
A statement of your holdings and their market value at any given point.
Positive alpha
See alpha
Positive autocorrelation, positively autocorrelated
See autocorrelation
Power swap
A swap that pays LIBOR squared or cubed less a fixed amount/rate in exchange for a floating rate. More generally, any leveraged swap that pays a multiple of LIBOR usually in exchange for a greatly increased fixed rate if interest rates move against the end user.
Preference shares
Similar to ordinary shares, but normally pay a fixed dividend and rank more highly for dividend payment and in a company liquidation.
Premium
A term used to describe the price paid for a covered warrant.
Price/earnings ratio (P/E ratio)
The share price of a company divided by the earnings per share. A high P/E ratio implies that the company’s future prospects are highly regarded.
Principal
1. A person or company for whom an agent acts.
2. The face value of a debt instrument, such as a bond.
Private placement
The distribution or sale of securities on a restricted basis, normally to institutional investors only.
Probability distribution
A distribution of all possible random variables, together with the likelihood that they will happen.
Proshare
An independent, not-for-profit organisation supported by the London Stock Exchange and the Confederation of British Industry. It promotes responsible equity-based investment and furthers the interests of private investors.
Prospectus
See offering circular
Protected put
With a long position in the underlying asset, an investor can buy a put option to ‘protect’ him or herself from a fall in the asset price. The net position is referred to as a protected put.
PTM
See Panel on Takeover and Mergers
PTM Levy
A nominal charge of £1 on deals with considerations of £10,000 and over paid to the Panel for Takeovers and Mergers.
Public offering
General distribution of new securities without restriction. Distinct from a private placement or Rule 144a offering.
Put
Right of the bond holder to redeem the bond prior to maturity on either on a specific date or a series of specific dates.
Put-call parity
The relationship between the value of a European call option and a European put option, where the two options are written on the same underlying, with the same strike price and the same maturity. When both options are at the money forward, the value of the call option is equal to the value of the put option.
Put covered warrant
A covered warrant that gives the holder the right, but not the obligation, to sell the underlying at a future date and specified price.
Put option
Option that gives the holder the right, but not the obligation, to sell a specified amount of a commodity, financial instrument or currency. The buyer of a put is expressing a bearish view of the underlying and also implicitly, since he is long an option, believes either that volatility will rise or stay the same.
