Lessons:


Glossary
A comprehensive AtoZ listing of 2,500 financial terms

 Valueadded tax
 Method of indirect taxation whereby a tax is levied at
each stage of production on the value added at that specific stage.
 ValueatRisk model (VAR)
 Procedure for estimating the
probability of
portfolio losses exceeding
some specified proportion based on a statistical analysis of
historical market price trends,
correlations, and
volatilities.
 Value additivity principal
 Prevails when the value of a whole group of
assets exactly equals
the sum of the values of the individual assets that make up
the group of assets. Stated differently, the principle that
the net present value
of a set of independent projects is just the sum of the net
present values of the individual projects.
 Value date
 In the market for
Eurodollar deposits and
foreign exchange,
value date refers to the delivery date
of funds traded. Normally it is on
spot transactions
two days after a transaction is agreed upon and the future date
in the case of a forward
foreign exchange trade.
 Value dating
 Refers to when value or credit is given for funds
transferred between banks.
 Value manager
 A manager who seeks to buy
stocks that are at a
discount to their
"fair value" and sell them at or in excess of that
value. Often a value stock is one with a low price to book value ratio.
 Vanilla issue
 A security issue
that has no unusual features.
 Variable
 A value determined within the context of a model.
Also called endogenous
variable.
 Variable annuities
 Annuity contracts
in which the issuer pays a periodic amount linked to the
investment performance of an
underlying portfolio.
 Variable cost
 A cost that is directly proportional to the volume of output produced. When production is zero, the variable cost is equal to zero.
 Variable life insurance policy
 A whole
life insurance policy that provides a death benefit
dependent on the insured's portfolio
market value at the time of death. Typically the company invests
premiums in common stocks, and hence
variable life policies
are referred to as equitylinked policies.
 Variable price security
 A security,
such as stocks or
bonds, that sells at a
fluctuating, marketdetermined price.
 Variable rate CDs
 Shortterm
certificate of deposits that pay
interest periodically on roll dates.
On each roll date, the coupon on
the CD is adjusted to reflect current market rates.
 Variable rated demand bond (VRDB)
 Floating rate bond
that can be sold back periodically to the
issuer.
 Variable rate loan
 Loan made at an interest
rate that fluctuates based on a base
interest rate such as the Prime Rate or
LIBOR.
 Variance
 A measure of dispersion of a set of data points
around their mean value.
The mathematical expectation of the squared deviations from the mean. The square root
of the variance is the standard deviation.

Variance minimization approach to tracking
 An approach to bond
indexing that uses historical data to estimate the
variance of the
tracking error.
 Variance rule
 Specifies the permitted minimum or maximum quantity
of securities that can be
delivered to satisfy a TBA trade.
For Ginnie Mae, Fannie Mae, and Freddie Mac
passthrough
securities, the accepted variance is plus or minus
2.499999 percent per million of the
par value of the
TBA quantity.
 Variation margin
 An additional required deposit to bring an
investor's equity account up to
the initial margin level when
the balance falls below the
maintenance
margin requirement.
 Venture capital
 An investment in a startup business that is perceived
to have excellent growth
prospects but does not have access to
capital markets.
Type of financing sought by earlystage companies seeking to
grow rapidly.
 Vertical acquisition
 Acquisition
in which the acquired firm
and the acquiring firm are
at different steps in the production process.
 Vertical analysis
 The process of dividing each
expense item in the
income statement
of a given year by net sales to identify expense items that
rise faster or slower than a change in sales.
 Vertical merger
 A merger in
which one firm acquires another firm that is in the same
industry but at another stage in the production cycle.
For example, the firm being
acquired serves as a supplier to
the firm doing the acquiring.
 Vertical spread
 Simultaneous purchase and sale of two
options that differ only
in their exercise price.
See: horizontal
spread.
 Virtual currency option
 A new option contract
introduced by the PHLX in
1994 that is settled in US$ rather than in the
underlying currency.
These options are also called 3Ds (dollar denominated delivery).
 Visible supply
 New muni bond
issues scheduled to come to market within the next 30 days.
 Volatility
 A measure of risk based
on the standard
deviation of investment fund performance over 3 years.
Scale is 19; higher rating indicates higher risk.
Also, the standard
deviation of changes in the logarithm of an asset
price, expressed as a yearly rate. Also, volatility is a
variable that appears in option pricing formulas. In the option pricing
formula, it denotes the volatility of the underlying asset return
from now to the expiration of the option.
Std Deviation 
Rating 

Std Deviation 
Rating 
up to 7. 99 
1 

20. 0022. 99 
6 
8. 0010. 99 
2 

23. 0025. 99 
7 
11. 0013. 99 
3 

26. 0028. 99 
8 
14. 0016. 99 
4 

29. 00 and up 
9 
17. 0019. 99 
5 



 volume
 Volatility risk
 The risk in the value of
options
portfolios due to the
unpredictable changes in the volatility of the
underlying asset.
 Volume
 This is the daily number of
shares of a
security that change
hands between a buyer and a seller.
 Voting rights
 The right to vote on matters that are put
to a vote of security
holders. For example the right to vote for directors.

