Single factor model

A model of security returns that acknowledges only one common factor.

Similar financial terms

Single-premium deferred annuity
An insurance policy bought by the sponsor of a pension plan for a single premium. In return, the insurance company agrees to make lifelong payments to the employee (the policyholder) when that employee retires.

Single-payment bond
A bond that will make only one payment of principal and interest.

Single index model
A model of stock returns that decomposes influences on returns into a systematic factor, as measured by the return on the broad market index, and firm specific factors.

Single country fund
A mutual fund that invests in individual countries outside the United States.

Amortization factor

Two-factor model
Black's zero-beta version of the capital asset pricing model.

Reported factor
The pool factor as reported by the bond buyer for a given amortization period.

Present value factor
Factor used to calculate an estimate of the present value of an amount to be received in a future period.

Pool factor
The outstanding principal balance divided by the original principal balance with the result expressed as a decimal. Pool factors are published monthly by the Bond Buyer newspaper for Ginnie Mae, Fannie Mae, and Freddie Mac(Federal Home Loan Mortgage Corporation) MBSs.

One-factor APT
A special case of the arbitrage pricing theory that is derived from the one-factor model by using diversification and arbitrage. It shows the expected return on any risky asset is a linear function of a single factor.

Old-line factoring
Factoring arrangement that provides collection, insurance, and finance for accounts receivable.

Net benefit to leverage factor
A linear approximation of a factor, T*, that enables one to operationalize the total impact of leverage on firm value in the capital market imperfections view of capital structure.

Multifactor CAPM
A version of the capital asset pricing model derived by Merton that includes extramarket sources of risk referred to as factor.

Maturity factoring
Factoring arrangement that provides collection and insurance of accounts receivable.

Conversion factors
Rules set by the Chicago Board of Trade for determining the invoice price of each acceptable deliverable Treasury issue against the Treasury Bond futures contract.

Factor market
The place where inputs or resources are bought or sold. Factor markets usually refer to labor or capital.

Black-Scholes model
The Black-Scholes model is the most commonly used formula when evaluating European call and put options. The equation was first published by economists Myron Scholes and the late Fisher Black in 1973. Later, Scholes and Robert Merton earned the Nobel Prize in Economics (1997) for the work done on the model and for its general contribution to the understanding of valuation of financial assets.

The formula makes some key assumptions that must be fulfilled in order to give the right answer ...

Yield curve option-pricing models
Models that can incorporate different volatility assumptions along the yield curve, such as the Black-Derman-Toy model. Also called arbitrage-free option-pricing models.

Two-state option pricing model
An option pricing model in which the underlying asset can take on only two possible (discrete) values in the next time period for each value it can take on in the preceding time period. Also called the binomial option pricing model.

Stochastic models
Liability-matching models that assume that the liability payments and the asset cash flows are uncertain.

Simple linear trend model
An extrapolative statistical model that asserts that earnings have a base level and grow at a constant amount each period.

Pie model of capital structure
A model of the debt/equity ratio of the firms, graphically depicted in slices of a pie that represent the value of the firm in the capital markets.

The process of creating a depiction of reality, such as a graph, picture, or mathematical representation.

Market model
This relationship is sometimes called the single-index model. The market model says that the return on a security depends on the return on the market portfolio and the extent of the security's responsiveness as measured, by beta. In addition, the return will also depend on conditions that are unique to the firm. Graphically, the market model can be depicted as a line fitted to a plot of asset returns against returns on the market portfolio.

Binomial option pricing model
An option pricing model in which the underlying asset can take on only two possible, discrete values in the next time period for each value that it can take on in the preceding time period.

Constant-growth model
Also called the Gordon-Shapiro model, an application of the dividend discount model which assumes (a) a fixed growth rate for future dividends and (b) a single discount rate.

Extrapolative statistical models
Statistical models that apply a formula to historical data and project results for a future period. Such models include the simple linear trend model, the simple exponential model, and the simple autoregressive model.

Harrod-Domar growth model
An economic model which maintains that the growth rate of GDP depends upon the level of savings and the capital output ratio.

Ho-Lee Option Model
An arbitrage free model which uses an estimated spot curve to evaluate embedded options in credit or fixed income securities.

Jensen Model
Jensen's model proposes another risk adjusted performance measure. This measure was developed by Michael C. Jensen and is sometimes referred to as the Differential Return Method. This measure involves evaluation of the returns that the fund has generated vs. the returns actually expected out of the fund given the level of its systematic risk. The surplus between the two returns is called Alpha, which measures the performance of a fund compared with the actual returns over the period. Required re ...

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Adverse selection

A situation in which market participation is a negative signal.

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