What is Stochastic Modeling? In finance, stochastic modeling is used to estimate potential outcomes where randomness or uncertainty is present. By allowing for random variation in the inputs, stochastic models are used to estimate the probability of various outcomes. Stochastic modeling allows financial institutions to include uncertainties in their estimates, accounting for situations where outcomes…
What is the Expanded Accounting Equation? The expanded accounting equation breaks down shareholder’s equity (otherwise known as owners’ equity) into more depth than the fundamental accounting equation. It allows analysts and accountants to see the components of shareholder’s equity and how it impacts the company. It breaks down net income and the transactions related to…
What is the Sterling Overnight Interbank Average Rate (SONIA)? Sterling Overnight Interbank Average Rate (SONIA) is an unsecured overnight rate for wholesale funds for all sterling-denominated unsecured overnight funding deals in the British sterling market. SONIA facilitates the direct use of overnight funding deals in financial contracts across the sterling bond, loan, and derivative markets….
What is the Standard Industrial Classification (SIC)? The Standard Industrial Classification (SIC) is a four-digit classification system that classifies industries according to business activities. The SIC classification system was created in 1937 to help the U.S. government and government agencies analyze economic activities across the domestic economy. The SIC code assigned to a company was…
What is the House Maintenance Requirement? House maintenance requirement refers to the minimum amount of equity that a trader must have in their account to maintain a margin balance. The regulations are set out by Regulation T of the Federal Reserve as a way to protect brokerage firms from losses in the event that traders…
What is House Call? A house call is an order by a brokerage firm demanding an account holder to increase the margin account’s equity when it is below the requirement. The call is often preceded by losses in the securities bought on margin, which is the credit extended to traders to purchase additional securities. Investors…
What is Hostile Bid? A hostile bid is a type of takeover bid where the acquiring company presents a tender offer directly to the shareholders to buy their shares at a premium. The acquiring entity does not go through the board of directors because they rejected the offer or they are against the acquisition. The…
What is a Hot IPO? A Hot IPO (Initial Public Offering) is a highly anticipated first-time issuance of a company’s shares to the general public in an open market. One or more investment banks can act as underwriters for the offering. The objective of issuing shares through an IPO is to raise money for the…
What is Hot Hand? Hot hand is a cognitive social bias where an individual believes that a successful past performance can be used to predict success in future attempts. People who believe in the hot hand phenomenon expect a trend to continue in the future. Such a line of thinking is not true since past…
