Single index model

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

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

Stock index
A stock index tracks changes in the value of a hypothetical portfolio of stocks. The major stock indices in the world are the NASDAQ Composite, S&P 500 and Dow Jones Index.

U.S. Dollar Index
The U.S. dollar index is a trade-weighted index of the values of six foreign currencies. At the moment, the index consists of euros (EUR), Japanese yen (JPY), British pounds (GBP), Canadian dollars (CAD), Swedish kronas (SEK) and Swiss francs (CHF).

Herfindahl index
The Herfindahl index (HI) is a measure of industry concentration equal to the sum of the squared market shares of the firms in the industry.

The Herfindahl index is defined as the sum of the squares of the market shares of each individual firm. As such, the index can range from 0 to 10,000, moving from a very large amount of very small firms to a single monopolistic producer. Decreases in the Herfindahl index generally indicate a loss of pricing power and an increase in competition, whe ...

Breadth index
A measurement of advances and declines in a trading period.

Treynor Index
Treynor's T is a measure of the excess return per unit of risk, where excess return is defined as the difference between the portfolio's return and the risk-free rate of return over the same evaluation period and where the unit of risk is the portfolio's beta.

Strike index
For a stock index option, the index value at which the buyer of the option can buy or sell the underlying stock index. The strike index is converted to a dollar value by multiplying by the option's contract multiple.

Stratified sampling bond indexing
A method of bond indexing that divides the index into cells, each cell representing a different characteristic, and that buys bonds to match those characteristics.

Stratified sampling approach to indexing
An approach in which the index is divided into cells, each representing a different characteristic of the index, such as duration or maturity.

Stratified equity indexing
A method of constructing a replicating portfolio in which the stocks in the index are classified into stratum, and each stratum is represented in the portfolio.

Stock index option
An option in which the underlying is a common stock index.

Risk indexes
Categories of risk used to calculate fundamental beta, including (a) market variability, (b) earnings variability, (c) low valuation, (d) immaturity and smallness, (e) growth orientation, and (f) financial risk.

Pure index fund
A portfolio that is managed so as to perfectly replicate the performance of the market portfolio.

Profitability index
The present value of the future cash flows divided by the initial investment. Also called the benefit-cost ratio.

Optimization approach to indexing
An approach to indexing which seeks to optimize some objective, such as to maximize the portfolio yield, to maximize convexity, or to maximize expected total returns.

Market value-weighted index
An index of a group of securities computed by calculating a weighted average of the returns on each security in the index, with the weights proportional to outstanding market value.

TMWX (Wilshire 5000 Total Market Index)
The TMWX measures the performance of all U.S. headquartered equity securities with readily available price data.

TSX Index
This is the re-named index tracking the top 60 Toronto Stock Exchange companies. It is managed and promoted by Standard and Poor's. It is generally referred to as the S&P/TSX60.

Bond indexing
Designing a portfolio so that its performance will match the performance of some bond index.

Buying the index
Purchasing the stocks in the S&P 500 in the same proportion as the index to achieve the same return.

Consumer Price Index
The CPI, as it is called, measures the prices of consumer goods and services and is a measure of the pace of U.S. inflation. The U.S. Department of Labor publishes the CPI very month.

CAC 40 index
A broad-based index of common stocks composed of 40 of the 100 largest companies listed on the forward segment of the official list of the Paris Bourse.

Commodity Price Index
Index or average, which may be weighted, of selected commodity prices, intended to be representative of the markets in general or a specific subset of commodities (for example, grains or livestock).

Market Index Deposits (MIDs)
Bank certificates of deposit or deposit notes with a return linked to the performance of an index, usually a stock market index.

Jensen index
Index that uses the capital asset pricing model to determine whether a money manager outperformed a market index. The alpha of an investment or investment manager.

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.

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

Modeling
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 ...