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Risk-free Bond
A risk-free bond is a theoretical bond that repays interest and principal with absolute certainty. The rate of return would be the risk-free interest rate. It is primary security, which pays off 1 unit no matter state of economy is realized at time t+1 . So its payoff is the same regardless of what state occurs. Thus, an investor experiences no risk by investing in such an asset. In practice, government bonds of financially stable countries are treated as risk-free bonds, as governments can raise taxes or indeed print money to repay their domestic currency debt. For instance, United States Treasury notes and United States Treasury bonds are often assumed to be risk-free bonds. Even though investors in United States Treasury securities do in fact face a small amount of credit risk, this risk is often considered to be negligible. An example of this credit risk was shown by Russia, which defaulted on its domestic debt during the 1998 Russian financial crisis. Modelling the pric ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Bond (finance)
In finance, a bond is a type of Security (finance), security under which the issuer (debtor) owes the holder (creditor) a debt, and is obliged – depending on the terms – to provide cash flow to the creditor (e.g. repay the principal (i.e. amount borrowed) of the bond at the Maturity (finance), maturity date and interest (called the coupon (bond), coupon) over a specified amount of time.) The timing and the amount of cash flow provided varies, depending on the economic value that is emphasized upon, thus giving rise to different types of bonds. The interest is usually payable at fixed intervals: semiannual, annual, and less often at other periods. Thus, a bond is a form of loan or IOU. Bonds provide the borrower with external funds to finance long-term investments or, in the case of government bonds, to finance current expenditure. Bonds and Share capital, stocks are both Security (finance), securities, but the major difference between the two is that (capital) stockholders h ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Interest Rate
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, the compounding frequency, and the length of time over which it is lent, deposited, or borrowed. The annual interest rate is the rate over a period of one year. Other interest rates apply over different periods, such as a month or a day, but they are usually annualized. The interest rate has been characterized as "an index of the preference . . . for a dollar of present ncomeover a dollar of future income". The borrower wants, or needs, to have money sooner, and is willing to pay a fee—the interest rate—for that privilege. Influencing factors Interest rates vary according to: * the government's directives to the central bank to accomplish the government's goals * the currency of the principal sum lent or borrowed * the term to m ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
List Of Economics Topics
The following outline is provided as an overview of and topical guide to economics. Economics is a branch of science that analyzes the production, distribution, and consumption of goods and services. It aims to explain how economies work and how agents (people) respond to incentives. Economics is a behavioral science (a scientific discipline that focuses on the study of human behavior) as well as a social science (a scientific discipline that explores aspects of human society). Branches of economics * Macroeconomics – branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole, rather than individual markets. * Microeconomics – branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of limited resources. Subdisciplines of economics * Agricultural economics – applied field of economics concerned with the application of economic theory in ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Risk-free Interest Rate
The risk-free rate of return, usually shortened to the risk-free rate, is the rate of return of a hypothetical investment with scheduled payments over a fixed period of time that is assumed to meet all payment obligations. Since the risk-free rate can be obtained with no risk, any other investment having some risk will have to have a higher rate of return in order to induce any investors to hold it. In practice, to infer the risk-free interest rate in a particular currency, market participants often choose the yield to maturity on a risk-free bond issued by a government of the same currency whose risks of default are so low as to be negligible. For example, the rate of return on zero-coupon Treasury bonds (T-bills) is sometimes seen as the risk-free rate of return in US dollars. Theoretical measurement As stated by Malcolm Kemp in chapter five of his book ''Market Consistency: Model Calibration in Imperfect Markets'', the risk-free rate means different things to different pe ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Probability Measure
In mathematics, a probability measure is a real-valued function defined on a set of events in a σ-algebra that satisfies Measure (mathematics), measure properties such as ''countable additivity''. The difference between a probability measure and the more general notion of measure (which includes concepts like area or volume) is that a probability measure must assign value 1 to the entire space. Intuitively, the additivity property says that the probability assigned to the union of two disjoint (mutually exclusive) events by the measure should be the sum of the probabilities of the events; for example, the value assigned to the outcome "1 or 2" in a throw of a dice should be the sum of the values assigned to the outcomes "1" and "2". Probability measures have applications in diverse fields, from physics to finance and biology. Definition The requirements for a set function \mu to be a probability measure on a σ-algebra are that: * \mu must return results in the unit interval ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Expected Value
In probability theory, the expected value (also called expectation, expectancy, expectation operator, mathematical expectation, mean, expectation value, or first Moment (mathematics), moment) is a generalization of the weighted average. Informally, the expected value is the arithmetic mean, mean of the possible values a random variable can take, weighted by the probability of those outcomes. Since it is obtained through arithmetic, the expected value sometimes may not even be included in the sample data set; it is not the value you would expect to get in reality. The expected value of a random variable with a finite number of outcomes is a weighted average of all possible outcomes. In the case of a continuum of possible outcomes, the expectation is defined by Integral, integration. In the axiomatic foundation for probability provided by measure theory, the expectation is given by Lebesgue integration. The expected value of a random variable is often denoted by , , or , with a ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Marginal Rate Of Substitution
In economics, the marginal rate of substitution (MRS) is the rate at which a consumer can give up some amount of one good in exchange for another good while maintaining the same level of utility. At equilibrium consumption levels (assuming no externalities), marginal rates of substitution are identical. The marginal rate of substitution is one of the three factors from marginal productivity, the others being marginal rates of transformation and marginal productivity of a factor. As the slope of indifference curve Under the standard assumption of neoclassical economics that goods and services are continuously divisible, the marginal rates of substitution will be the same regardless of the direction of exchange, and will correspond to the slope of an indifference curve (more precisely, to the slope multiplied by −1) passing through the consumption bundle in question, at that point: mathematically, it is the implicit derivative. MRS of X for Y is the amount of Y which a consumer c ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Arrow-Debreu Security
In financial economics, a state-price security, also called an Arrow–Debreu security (from its origins in the Arrow–Debreu model), a pure security, or a primitive security is a contract that agrees to pay one unit of a numeraire (a currency or a commodity) if a particular state occurs at a particular time in the future and pays zero numeraire in all the other states. The price of this security is the state price of this particular state of the world. The state price vector is the vector of state prices for all states. See . An Arrow security is an instrument with a fixed payout of one unit in a specified state and no payout in other states. It is a type of hypothetical asset used in the Arrow market structure model. In contrast to the Arrow-Debreu market structure model, an Arrow market is a market in which the individual agents engage in trading assets at every time period t. In an Arrow-Debreu model, trading occurs only once at the beginning of time. An Arrow Security ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Ordinary Differential Equation
In mathematics, an ordinary differential equation (ODE) is a differential equation (DE) dependent on only a single independent variable (mathematics), variable. As with any other DE, its unknown(s) consists of one (or more) Function (mathematics), function(s) and involves the derivatives of those functions. The term "ordinary" is used in contrast with partial differential equation, ''partial'' differential equations (PDEs) which may be with respect to one independent variable, and, less commonly, in contrast with stochastic differential equations, ''stochastic'' differential equations (SDEs) where the progression is random. Differential equations A linear differential equation is a differential equation that is defined by a linear polynomial in the unknown function and its derivatives, that is an equation of the form :a_0(x)y +a_1(x)y' + a_2(x)y'' +\cdots +a_n(x)y^+b(x)=0, where a_0(x),\ldots,a_n(x) and b(x) are arbitrary differentiable functions that do not need to be linea ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Maturity Date
Maturity or immaturity may refer to: * Adulthood or age of majority * Maturity model ** Capability Maturity Model, in software engineering, a model representing the degree of formality and optimization of processes in an organization * Developmental age, the age of an embryo as measured from the point of fertilization * Mature technology, a technology has been in use and development for long enough that most of its initial problems have been overcome * Maturity (finance), indicating the final date for payment of principal and interest * Maturity (geology), rock, source rock, and hydrocarbon generation * Maturity (psychological), the attainment of one's final level of psychological functioning and the integration of their personality into an organized whole * Maturity (sedimentology), the proximity of a sedimentary deposit from its source * Sexual maturity, the stage when an organism can reproduce, though this is distinct from adulthood See also * Evolution Evolution i ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Zero-coupon Bond
A zero-coupon bond (also discount bond or deep discount bond) is a bond in which the face value is repaid at the time of maturity. Unlike regular bonds, it does not make periodic interest payments or have so-called coupons, hence the term zero-coupon bond. When the bond reaches maturity, its investor receives its par (or face) value. Examples of zero-coupon bonds include US Treasury bills, US savings bonds, long-term zero-coupon bonds, and any type of coupon bond that has been stripped of its coupons. Zero coupon and deep discount bonds are terms that are used interchangeably. In contrast, an investor who has a regular bond receives income from coupon payments, which are made semi-annually or annually. The investor also receives the principal or face value of the investment when the bond matures. Some zero coupon bonds are inflation indexed, and the amount of money that will be paid to the bond holder is calculated to have a set amount of purchasing power, rather than a s ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Black–Scholes Model
The Black–Scholes or Black–Scholes–Merton model is a mathematical model for the dynamics of a financial market containing Derivative (finance), derivative investment instruments. From the parabolic partial differential equation in the model, known as the Black–Scholes equation, one can deduce the Black–Scholes formula, which gives a theoretical estimate of the price of option style, European-style option (finance), options and shows that the option has a ''unique'' price given the risk of the security and its expected return (instead replacing the security's expected return with the risk-neutral rate). The equation and model are named after economists Fischer Black and Myron Scholes. Robert C. Merton, who first wrote an academic paper on the subject, is sometimes also credited. The main principle behind the model is to hedge (finance), hedge the option by buying and selling the underlying asset in a specific way to eliminate risk. This type of hedging is called "continuou ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
