Finance

Catastrophe Futures and Options (Finance)

Catastrophe futures and options are derivative securities whose payoffs depend on insurers’ underwriting losses arising from natural catastrophes (e.g. hurricanes). Specifically, the payoffs are derived from an underwriting lo ss ratio that measures the extent of the US insurance industry’s catastrophe losses relative to premiums earned for policies in some geographical region over a specified […]

Capital Structure (Finance)

Capital structure is the mixture of securities issued by a company to finance its operations. Companies need real assets in order to operate. These can be tangible assets, such as buildings and machinery, or intangible assets, such as brand names and expertise. To pay for the assets, companies raise cash not only vi a their […]

Contagion (Finance)

News of a bankruptcy could affect the trading positions and equity values of other companies in the same industry simply because a lack of information encourages the presumption that the circumstances of the bankrupt firm apply more generally. This phenomenon is referred to as contagion. Other examples of initializing news events and possible contagious consequences […]

Consolidation (Finance)

Because of their separate legal status, a parent company and its subsidiaries keep independent accounts and prepare separate financial statements. However, investors are interested in the financial performance of the combined group and so this is reported as the group’s “consolidated” or “group” financial statements, which present the financial accounts as if they were from […]

Conditional Performance Evaluation (Finance)

Conditional performance evaluation refers to the measurement of performance of a managed portfolio taking into account the information that was available to investors at the time the returns were generated. An example of an unconditional measure is Jensen’s alpha based on the capital asset pricing model (CAPM). Unconditional measures may assign superior performance to managers […]

Contingent Claims (Finance)

In layman’s language, a contingent-claims market can be understood by comparing it with betting in a horse race. The state of the world corresponds to how the various horses will place, and a claim corresponds to a bet that a horse will win. If your horse comes in, you get paid in proportion to the […]

Convertibles (Finance)

A convertible is a bond with an option for the holder to exchange the bond into “new” shares of common stock of the issuing company under specified terms and conditions. These include the conversion period and the conversion ratio. The conversion period is the period during which the bond may be converted into shares. The […]

Convenience Yields(Finance)

The notion of “convenience yields” was first introduced by Kaldor (1939) as the value of physical goods, held in inventories resulting from their inherent consumption use, which accrues only to the owner of the physical commodity and must be deducted from carrying costs. Similarly, Brennan and Schwartz (1985) define the convenience yield as the flow […]

Corporate Takeover Language (Finance)

The word “takeover” is used as a generic term to refer to any acquisition through a tender offer. In layman’s language it is a straightforward transaction in which two firms decide to combine their assets either in a friendly or unfriendly manner under established legal procedures. A “friendly takeover” is sometimes referred to as a […]

Corporate Governance (Finance)

The firm is a nexus of contracts, and the corporation is a firm whose equity claims have limited liability and are generally traded on li quid markets. Corporate governance refers to the rules, procedures, and administration of the firm’s contracts with its shareholders, creditors, employees, suppliers, customers, and sovereign governments. Governance is legally vested in […]

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