P - Return to Index
P&I - Are principal and income payments or principal and interest.
P/L - See Profit and Loss Statement.
P&S - See Purchase and Sale.
PAC - See Planned Amortization Class security.
PAC POs - Are Principal Only issues which are predicated on a predetermined PAC prepayment schedule, range, or collar.
Packs - Are variations of strip trades whereby a trader or risk manager can place a series of calendar month contracts in one transaction. Packs can be bought or sold. There are four contracts in a pack. Eurodollar packs are quoted in minimum half-tick increments.
Painting the Tape - Refers to activities which give the impression of increased volume and/or price changes. Sometimes this action is motivated by a party or parties to have a specific price occur at the end of the trading session in order to influence that instrument's valuation for mark-to-market purposes.
Paper Loss - Is an unrealized loss. When trading commodities, futures, and options on futures, the mark-to-market process effectively equates these losses to realized losses. This is not necessarily the case for securities transactions.
Paper Profit - Is an unrealized gain. When trading commodities, futures, and options on futures, the mark-to-market process effectively equates these gains to realized gains. This is not necessarily the case for securities transactions.
Par (bond) - Is the principal amount of the loan. While bonds were typically issued in $1,000 denominations, the prices were quoted in percents of that denominations. For example, a bond priced at 105 meant $1,050.
Parity - Is the point where a convertible security equals the converted value of the underlying instrument.
Partial Hedge - Is a risk management concept whereby, some but not all, of the risk of a combined position is managed away. This can occur by choice or market action. For the latter it is considered due to exogenous factors.
Participation - Occurs when an investor receives a portion of the profits, appreciation, or increased cash flow. This term tends to occur in the fixed income or real estate markets.
Par Value (stocks) - Is the accounting term for the capitalization of the equity. It is usually arbitrary.
Partial Fill - Is the result where only a portion of an order was filled. For example, less than the indicated amount was bought or sold at a stipulated price limit.
Pass Through - Is the term used to represent a generic class of securitized mortgage notes. Typically, these mortgage backed securities are issued by agencies of the United States, such as FNMA or FHLMC. The underlying collateral is serviced by banks or mortgage companies. The revenue generated by the servicing is considered fee income. The principal and interest payments go to the investors. Two attractive features of these instruments is that the securitization process lowers the regulatory capital requirements for the originating then holding investor. Secondly, the securitization tends to improve the liquidity of the asset.
Path - Is the route that market prices followed or are expected to follow.
Path Dependent - Is a strategy and/or derivative which is predicated on a particular occurrence or direction in price movement.
Path Independent - Is a strategy and/or derivative which is not predicated on a particular occurrence or direction in price movement.
PAX - Is the Private ACH Exchange.
Payer - Is a mortgage back securities term which refers to a tranche currently paying both interest and principal.
Payment in Kind - Refers to securities that make payments in more securities of the same kind. For example, the hypothetical QWERT Corporation issues bonds due in 20xx with a 10 percent coupon. Then on the interest date, it issues additional securities as payment with terms similar to the initial offering. Generally, it is a technique to reduce temporarily cash outflows.
PBL - Refers to Point Balance.
PE - See Price to Earnings Ratio.
Peakedness - Is the relatively pointed appearance for a probability distribution. See Leptokurtic and compare Platykurtic.
Penalty Bid - Refers to a syndicate's effort to support or stabilize the price of the newly issued security. This activity is executed at or below the initial offering price.
Performance Bond - See SPAN® and Margin Requirement.
Period Certain - Refers to an annuity which guarantees a minimum number of periodic payments.
Permanent Financing - Consists of stock or long-term bonds. While most bonds have maturities they are still considered a type of permanent financing.
Perpetuity - Is a stream of payments or a type of annuity that starts payments on a fixed date and such payments continue forever, or perpetually. Often preferred stock which pays a dividend is considered as a form of perpetuity. However, one must assume that the firm does not go bankrupt or is otherwise impeded for making timely payments.
The formula for evaluating a perpetuity is relatively straight forward. It is simply the expected income stream divided by a discount factor or market rate of interest. It reflects the expected present value of all payments. It is comparable to a perpetual bond or Consol in this respect.
If a preferred issue pays a $2.00 quarterly dividend and the annual interest rate is 5 percent then one would expect to be willing to pay 2.50/.0125, or $200 per share. Here, the 5 percent interest rate was adjusted for a simple quarterly disbursement (.05/4 = .0125).
Personal Finance - Refers to income, savings, investments, insurances, speculations, loans, mortgages, budgets, spending, and other financial affairs on an individual basis.
This site with its various sections can help you in this area.
Phantom Income - Is a taxable event even though no cash flow was generated during the year other than an accounting accretion which represented interest.
PHLX - Is the Philadelphia Stock Exchange.
PIBOR - Is the Paris Interbank Offered Rate.
Pickup - Is the enhancement in yield or income relative to a comparable treasury instrument.
Pin - Is the at-the-money strike price, particularly at an option's expiration.
Pin Risk - Is the uncertainty that an option position may be exercised into the underlying instrument. It is risky because it often refers to markets flirting with the prevailing at-the-money level. At such times, the gamma on a position is very erratic and difficult to hedge. Also, there are doubts about the exercise or assignment process. A trader can experience significant changes in net positions due to option exercises.
Pink Sheets - Is the daily report which lists interdealer quotes for over-the-counter stocks.
Pipeline - Is a type of risk often associated with mortgages. It occurs from the time an application is accepted to the sale of the asset. Some analysts partition this process into two parts: production and inventory. Production starts at the time of the application and continues until the closing of the mortgage. Inventory risk starts at the closing and continues until the product is hedged or sold. Different hedging techniques are suggested for the two partitions.
Pit - Is the area on the floor of an exchange where trading occurs. It is also known as the ring.
PITI - Refers to principal, interest, taxes, and insurance.
Planned Amortization Class - Is a security which is structured to have a reasonable life expectancy provided the prepayment speeds stay within the defined ranges. The scheduled interest and principal payments tend to be more stable for these tranches relative to the other parts of the deal.
Platykurtic (Platykurtosis) - Describes the relatively flat condition for a distribution. This condition is evaluated against the normal distribution and its attendant bell-shaped curve.
PO - Is the principal only derivative of a credit structure. Typically, it is found in CMO deals.
POA - See Power of Attorney.
Point - Is one percent of the principal amount.
Pool - Is a term used in several ways. From a futures trading perspective, it refers to the amount or size of unfilled orders. This inability to fill orders can occur at a limit up or limit down market condition.
For mortgages or other loans, it refers to the individual collateral underlying the security.
For securitized mortgages, it can refer information such as the issuer's name, year of origination, geographic distribution, WAC, WAM and the maturity date.
Pooling - Is the combining of different loans into standardized or predefined units for trading purposes. This activity increases the homogenization of the underlying collateral. A key benefit of pooling is a diverse, generic security.
Portfolio - Is the holding of a collection of investments. For some individuals and institutions it is the entire holdings consisting of both assets and liabilities.
Portfolio Analysis - Is the methodology which quantified systematic and nonsystematic risk for investment holdings. Harry Markowitz is considered the primary influence in this field.
Portfolio Insurance - Is a form of hedging equity products, although others include credit instruments as well. Sometimes, this process is called dynamic hedging because it requires quick adjustments in the hedge. Initially, futures were used at various stop points to serve as synthetic put options. However, rapid and abrupt price moves can cause serious imbalances in the hedging mix.
Portfolio Theory - Evaluates the reduction of nonsystematic or diversifiable risks through the selection of securities or other instruments into a composite holding or efficient portfolio. This efficiency means that a portfolio would offer lower risks or more stable returns for a targeted return level. Instruments that have independent returns lower nonsystematic risks. Also, instruments that are inversely related on a return basis reduce the diversifiable risks. The basic theory assumes that returns are independent, investor expectations are homogeneous, and that the normalized probability distributions are stable.
Positive Carry - Is the condition whereby a portfolio after financing considerations still generates a positive income.
Power Cap - Is a derivative that pays off from the long's perspective in an exponential manner. If the current market price of the benchmark is greater than the strike, then the long receives payment. The payment is determined by raising to the predetermined power the difference between the current price and the strike price. For the case of a 2 power cap, or raised to the second power, the difference between the current market and the strike is squared. For a cubed power cap, the payoff would be the difference between the current price less the strike raised to the third power. The powers can be whatever is agreed upon. It should be noted that the risk profiles show abrupt and accelerating movements.
Power Grid™ - Is a matrix which enables an analyst, investor, portfolio or risk manager a quick and incisive look at the option characteristics of a group of countries or corporations. In the case of countries, such as the G-7, the equity, credit and currency markets are comparable in terms of standardized statistics such as volatility. This tool helps to identify imbalances and potential arbitrage situations.
Is a method of simultaneously evaluating the financial markets for G-7 or other basketed economies.
Power of Attorney - Is the granting of decision making authorization by one party to another. Here, it would be the client to the money manager or account executive. The Power of Attorney may be limited or full. When it is limited, the limitation is to trading or investing decisions only. When it is full it expands to cash and other decisions as well. The usual arrangement for trading, investing or speculating is a Limited Power of Attorney Arrangement.
Powers and Authorities Document - Is a formal document that outlines position taking limits for an enterprise. It does so for the total firm, the operating lines (OLs), the trading desks, the traders, and the instruments. This document lists:
This important document is a reference as to process and procedure for trading, portfolio and risk management. The enforcement of this document must be at the executive level. For more information, contact us.
- aging limits
- cash limits
- concentration limits
- contract limits
- conversion limits
- counterparty limits
- country limits
- cpv adjusted values
- cross border limits
- currency limits
- day trading limits
- delta adjusted limits
- dollar loss limits (daily, streak, cumulative over period)
- duration limits
- funding limits
- gross limits
- hierarchal organization for empowerment, enforcement and exceptions
- instruments may or may not be traded
- inventory limits
- investment limits
- long position limits
- margin limits
- market value limits
- maximum individual trade limits
- net position limits
- notional value limits
- overnight exposure limits
- premium and discount limits
- principal or share limits
- regulatory capital limits for the firm, desk, trader, and instrument
- short position limits
- size of market limits (the firm relative to the marketplace)
- supervisory limits
- time value decay limits
- VAR (VaR) limits
- volatility limits
- who is authorized to trade, when, where, and with whom.
PPN - Is the Private Placement Number.
Precious Metals - Refer to Gold, Palladium, Platinum and Silver from a futures or bullion trading perspective.
Precious Metals Lease - Is a vehicle or technique used to finance precious metals inventories. It is related to the term structure of precious metals prices.
Preferred Stock - Is an equity security which has a priority relative to ordinary common shares for dividends and return of par amount in the event of a corporate dissolution. Often, preferred shares are nonvoting equity interests. However, a default in the payment of that issue's preferred dividend or other covenant breach may temporarily give the preferred holders voting powers. Preferred shares can have convertible, cumulative, participating, voting, or other special features.
Premium - Is used several ways. It can refer to the value of an option, the amount that a credit instrument is trading over par, or the price differential due to quality or location characteristics for commodities.
Premium for Bonds - Is the amount of price above par for Mortgage Backed Securities, Corporate Bonds, and Treasury Bonds. For convertibles, it is the amount that the convertible security is trading over the converted out value of the underlying instrument.
Prepayment - Is an additional principal amount in excess of the required amount paid by the mortgagor to reduce the open mortgage balance.
Prepayment Penalty - Refers to a cost which may be charged against a borrower in the event of a prepayment.
Prepayment Risk - Is the potential loss related to an early retirement of debt. The risk tends to be more common in declining interest rate environments.
Prequalification - Is an informal assessment of the creditworthiness of a potential borrower. Often it is a quick view of income versus existing obligations and expected obligations. For real estate transactions, it estimates the prospect's potential borrowing and buying capacity.
Pre-refunded - See Advanced Refunding.
Pre-Sale Order - Refers to an order placed with a syndicate prior to the winning of the municipal issue by that syndicate. Often this order receives execution priority.
Price Discovery - Is the process which reflects the interaction of buyers and sellers, supply and demand, and creates a record of transactions. The financial markets are classic examples of this behavior. Securities and commodities quickly reflect the relative desirability of ownership.
Price-to-Book Ratio - Is computed by dividing the current share price by the book value per share. Book value per share is determined by dividing assets less the liabilities (the book value) by the number of shares outstanding.
Price to Earnings Ratio - Is the relationship between the current price of an equity and its earnings stream.
Primary Dealer - Is an institution that is entitled and obligated to purchase and sell government securities with the Federal Reserve directly. They serve as the conduits for Federal Reserve open market activities. There are approximately 30-40 such dealers.
Private Pass Throughs - Are mortgage backed issues securitized by non-agency financial institutions. This compares to FNMA, Freddie Mac and GNMA securities.
Probability Distribution - Is the mechanism which generates occurrences, observations, events, returns, and variability of returns or risk. A famous distribution is the Normal Distribution with its often cited "bell-shaped curve." It should be noted that many other distributions have bell-shaped curve appearances but do not necessarily behave in a normal manner. There are several statistical tests to compare and differentiate between seemingly similar curves but significantly different processes. Some probability distributions are: Bernoulli, Beta, Binomial, Cauchy, Chi Square, Exponential, F, Gamma, Geometric, Lognormal, Negative Binomial, Normal, Pascal, Poisson, t and Uniform.
Production - Is the amount of revenue generated by a broker or account executive. It can also refer to the public offering price of a newly issued municipal security.
Program Trading - Is the activity which uses computers and algorithms to initiate and close transactions. One popular form is index arbitrage and another is the use of programs to buy or sell entire baskets or portfolios via different access systems.
Profit and Loss Statement - Is the report which shows a client's, trader's, desk's, operating line's or firm's profitability. It can refer to one trade or some designated accounting period. In the gross form, these reports only indicate trading impacts. Depending on the reporting purposes, the reports can take into account other income and expenses.
Prospectus - Is the formal or official document which presents financial condition, key employees and management, and the purpose of the organization. It accompanies an Initial Public Offering or Mutual Funds transactions.
Proxy - Is the written authorization by the shareholder of record to another party to vote the shares as the shareholder designates or to vote the shares as the proxy holder deems fit.
PSA - Is the Public Securities Association. It is an association of banks, brokers, and dealers who underwrite or sell bonds. These bonds include: U.S. treasuries, agencies, municipals, and mortgage backed securities. In particular, this organization sets standards and practices for the mortgage backed market. Among these standards are the PSA Prepayment Models and assumptions.
PSA Prepayment - Is the model or the speed for a mortgage backed security. A 100 percent PSA speed assumes a prepayment rate of .2 percent starting with the first after origination and continuing until the thirtieth month. Thereafter the model assumes a prepayment rate of 6 percent.
Pull to Par - Is the phenomenon that as time passes, the price of a credit instrument in good standing moves towards its par value. The nearer to maturity the greater the influence because the security will only pay out the stated principal amount.
Pump and dump - Refers to actions by brokers or market makers to attract new buyers. Here, the brokers create the illusion of high trading volume by inflating or pumping up the market for the security. This engineers a brief period of inflated prices. These activities may prompt investors to purchase the targeted securities only to have the broker dump many shares on the market place at the momentarily higher prices. This triggers a rapid decline in values and impacts the recent investors.
Punt - Is the Irish Currency or Irish Pound.
Punt also refers to getting out of or closing a market position.
Purchase and Sale - Is a report which lists a sale and a purchase of the same security, option, futures, derivatives, or currency. It shows dates, quantities, prices, and instrument identification. Other information may also be included.
Purchased Call - Is a bullish strategy. It confers the right but not the obligation to exercise the contract into a long position in underlying instrument. The risk is limited to the premium paid, and the reward is theoretically considered to be unlimited.
Purchased Put - Is a bearish strategy. It confers the right but not the obligation to exercise the contract into a short position in the underlying instrument. The risk is limited to the premium paid, and the reward is theoretically considered to be limited to the difference between the strike less a zero market price.
Put Option - Is a derivative contract which grants to the purchaser the right but not the obligation to exercise. In the case of stocks, the put holder or owner would transfer 100 shares of stock upon exercise to the seller of the put at the stipulated strike price. In the case of futures, the holder or owner of the put would effectively receive a short position in the market which would be priced at the strike. The seller of the put would receive the corresponding long futures position.
PV - Is the Principal Value or the Par Value.
px or PX - Refers to prices.
Pyramiding or to Pyramid - Occurs when a position grows significantly and is funded by current profits, particulary open profits.
Our Mission |
About Barkley International Inc. |
Contacting Us |
| OASIS® Home |
Copyright © 1998-2003 Barkley International Inc. All Rights Reserved. - Page created Tuesday, May 19, 1998 by Oasis Management®. Last Modified on Tuesday, August 21, 2018.