What is a Protective Put? A protective put is a risk management and options strategy that involves holding a long position in the underlying asset (e.g., stock) and purchasing a put option with a strike price equal or close to the current price of the underlying asset. A protective put strategy is also known as…
What is Securitization? Securitization is a risk management tool used to reduce the idiosyncratic risk associated with the default of individual assets. Banks and other financial institutions use securitization to lower their risk exposure and reduce the size of their overall balance sheet. The Securitization Process Securitization can be best described as a two-step process:…
What is a Development Impact Bond? A development impact bond is a type of financial security that is used to finance development programs in low-resource countries by attracting private investors. Development impact bonds are considered a sub-type of social impact bonds. Similar to other social impact bonds, development impact bonds are new financial instruments that…
What is an Equal-Weighted Index? An equal-weighted index is a stock market index – comprised of a group of publicly traded companies – that invests an equal amount of money in the stock of each company that makes up the index. Thus, the performance of each company’s stock carries equal importance in determining the total…
What is Volume Weighted Adjusted Price (VWAP)? The Volume Weighted Average Price (VWAP) is, as the name suggests, is the average price of a stock weighted by the total trading volume. The VWAP is used to calculate the average price of a stock over a period of time. The volume weighted average price helps compare…
What is Kaufman’s Adaptive Moving Average (KAMA)? Kaufman’s Adaptive Moving Average (KAMA) was developed by American quantitative financial theorist Perry J. Kaufman in 1998. The technique began in 1972 but Kaufman officially presented it to the public much later through his book, “Trading Systems and Methods.” Unlike other moving averages, Kaufman’s Adaptive Moving Average accounts…
What is a Reverse Stock Split? A reverse stock split, as opposed to a stock split, is a reduction in the number of a company’s outstanding shares in the market. It is typically based on a predetermined ratio. For example, a 2:1 reverse stock split would mean that an investor would receive 1 share for…
What is Intermarket Analysis? Intermarket analysis involves the analysis of more than one related class of assets – such as stocks, bonds, commodities, and currencies. The analysis is done to help determine the strength or weakness of the asset class being considered. The concept was first introduced by John Murphy, a financial market analyst, in…
What is Equity Valuation? Equity valuation is a blanket term and is used to refer to all tools and techniques used by investors to find out the true value of a company’s equity. It is often seen as the most crucial element of a successful investment decision. Investment Banks typically have a equity research department,…
What is the Forward Curve? The forward curve or the future curve is the graphical representation of the relationship between the price of forward contracts and the time to maturity of the contracts. The vertical axis measures the price of a forward contract, and the horizontal axis measures the time to maturity of that forward…
