InterestIn finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct from a fee which the borrower may pay to the lender or some third party. It is also distinct from dividend which is paid by a company to its shareholders (owners) from its profit or reserve, but not at a particular rate decided beforehand, rather on a pro rata basis as a share in the reward gained by risk taking entrepreneurs when the revenue earned exceeds the total costs.
Forward rate agreementIn finance, a forward rate agreement (FRA) is an interest rate derivative (IRD). In particular it is a linear IRD with strong associations with interest rate swaps (IRSs). A forward rate agreement's (FRA's) effective description is a cash for difference derivative contract, between two parties, benchmarked against an interest rate index. That index is commonly an interbank offered rate (-IBOR) of specific tenor in different currencies, for example LIBOR in USD, GBP, EURIBOR in EUR or STIBOR in SEK.
Log-logistic distributionIn probability and statistics, the log-logistic distribution (known as the Fisk distribution in economics) is a continuous probability distribution for a non-negative random variable. It is used in survival analysis as a parametric model for events whose rate increases initially and decreases later, as, for example, mortality rate from cancer following diagnosis or treatment. It has also been used in hydrology to model stream flow and precipitation, in economics as a simple model of the distribution of wealth or income, and in networking to model the transmission times of data considering both the network and the software.
Derivative (finance)In finance, a derivative is a contract that derives its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, and is often simply called the underlying. Derivatives can be used for a number of purposes, including insuring against price movements (hedging), increasing exposure to price movements for speculation, or getting access to otherwise hard-to-trade assets or markets.
Exotic optionIn finance, an exotic option is an option which has features making it more complex than commonly traded vanilla options. Like the more general exotic derivatives they may have several triggers relating to determination of payoff. An exotic option may also include a non-standard underlying instrument, developed for a particular client or for a particular market. Exotic options are more complex than options that trade on an exchange, and are generally traded over the counter.
Generalized normal distributionThe generalized normal distribution or generalized Gaussian distribution (GGD) is either of two families of parametric continuous probability distributions on the real line. Both families add a shape parameter to the normal distribution. To distinguish the two families, they are referred to below as "symmetric" and "asymmetric"; however, this is not a standard nomenclature. The symmetric generalized normal distribution, also known as the exponential power distribution or the generalized error distribution, is a parametric family of symmetric distributions.
Dividend policyDividend policy is concerned with financial policies regarding paying cash dividend in the present or paying an increased dividend at a later stage. Whether to issue dividends, and what amount, is determined mainly on the basis of the company's unappropriated profit (excess cash) and influenced by the company's long-term earning power. When cash surplus exists and is not needed by the firm, then management is expected to pay out some or all of those surplus earnings in the form of cash dividends or to repurchase the company's stock through a share buyback program.
Compound interestCompound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on principal plus interest. It is the result of reinvesting interest, or adding it to the loaned capital rather than paying it out, or requiring payment from borrower, so that interest in the next period is then earned on the principal sum plus previously accumulated interest. Compound interest is standard in finance and economics.
Ratio distributionA ratio distribution (also known as a quotient distribution) is a probability distribution constructed as the distribution of the ratio of random variables having two other known distributions. Given two (usually independent) random variables X and Y, the distribution of the random variable Z that is formed as the ratio Z = X/Y is a ratio distribution. An example is the Cauchy distribution (also called the normal ratio distribution), which comes about as the ratio of two normally distributed variables with zero mean.
Log-normal distributionIn probability theory, a log-normal (or lognormal) distribution is a continuous probability distribution of a random variable whose logarithm is normally distributed. Thus, if the random variable X is log-normally distributed, then Y = ln(X) has a normal distribution. Equivalently, if Y has a normal distribution, then the exponential function of Y, X = exp(Y), has a log-normal distribution. A random variable which is log-normally distributed takes only positive real values.
