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Research guide: Financial terminology from Annuities to to Zero-coupon bonds

Do you know your Apportionment from your Binary Options? Your Collateralized Obligations from your Gross Redemption Yields? If not, you needn’t look any further as this exclusive downloadable guide brought to you by Euromoney has over 30 pages of terminology from the financial industry explained. <br><br> A degree of blurring and overlapping in the terminology of the banking, insurance and investment management industries has been inevitable. This guide aims to demystify many of those terms, bringing some of the more frequently used technical expressions in all three disciplines into a concise, single volume. We hope it will serve as a useful guide for market participants in all three areas of the financial services sector.

financial terminology guide from A-Z

                              download free guide
                                                                                                       List of included financial terms

Introduction: Towards a Common Risk Management Language In recent years, the worlds of banking, insurance and investment management have become increasingly intermingled, and for good reason – investment is, after all, a form of insurance, albeit one in which the parameters of risk and reward are generally broader.

That process of convergence has been visible at a regulatory and corporate level, with the passage of a series of financial reforms – such as the Gramm-Leach-Bliley Act in the US in 1990 – opening the way for consolidation between banks, insurance companies and investment management firms. The consequence has been a number of high profile mergers within the financial services sector – many of them negotiated on a cross-border basis – that have created global groups whose fields of expertise extend across all areas of business.

This is a logical development, given that one of the most important disciplines common to all three businesses is risk management: the proactive identification and measurement of financial risks and the timely implementation of measures designed to minimize or eliminate those risks. Over the past two decades, the risk management capabilities of the financial services sector have taken giant strides towards ensuring that the chances of a system-wide failure are minimized.

As risk management techniques have become more sophisticated and more efficient, innovations developed in banking and investment management have increasingly used the nomenclature of the insurance industry to describe the processes used to address the issue of risk.

An obvious example of this process has been the contribution made to the evolution of the structured finance market by monoline insurance companies, the specialists that started out by providing insurance in the market for municipal bonds, but that now also play a key role in providing protection for investors in areas ranging from project finance to the market for collateralized debt obligations (CDOs). Less obvious but equally important examples are to be observed in the growing importance of capital market products that go by different names, but which also effectively act as insurance policies.

Credit default swaps (CDS), for example, have been a key building block in the development of a new class of hedging and investment products that have transformed the fixed-income markets, although CDS themselves are essentially just insurance policies allowing for credit protection to be bought and sold among participants in the capital market.

In other words, the cross-fertilization of banking and insurance products and their closer integration with investment management is bringing with it a range of by-products from new hedging mechanisms to entirely new asset classes. These products allow investment managers to better manage their portfolios by enabling them to customize risk/return payoffs in a way that was, until recently, impossible.

On one level, this process has underpinned the development of a number of innovations that have improved efficiencies for retail and institutional investors alike – with the emergence of capital-guaranteed products such as constant proportion portfolio insurance (CPPI) one notable example. At another, it has helped in the evolution of products insuring a range of risks that were previously thought of as uninsurable, with the growing popularity of catastrophe bonds (or cat-bonds) one example of an innovation that will become more important as weather patterns become increasingly unpredictable.

Against this background, a degree of blurring and overlapping in the terminology of the banking, insurance and investment management industries has been inevitable. This guide aims to demystify many of those terms, bringing some of the more frequently used technical expressions in all three disciplines into a concise, single volume. We hope it will serve as a useful guide for market participants in all three areas of the financial services sector.

Simon Brady

List of financial terms:
* you may click on any of the linked topics to view Euromoney's coverage related to the term.


Accrued Interest & Accrued Interest Bonds


Algorithmic Trading

Alpha (see also ‘Greeks’)

Alternative Assets

Alternative Risk Transfer


Annuity (see also ‘Deferred Annuity’)


Arbitrage & Arbitrage Pricing

Asset-Backed Security (ABS)

Asset-Liability Management (ALM)


Barbell Investment Strategy

Basel I & Basel II (see also ‘Capital Adequacy’)

Basis Point

Basis Risk

Basis Trading

Bell Curve (see also ‘Normal Distribution’)

Beta (see also ‘Greeks’)

Binary Options



Bullet Bond


Callable Security

Capital – Economic & Regulatory

Capital Adequacy (see also ‘Basel I & Basel II')

Capital Asset Pricing Model (CAPM)

Captive Insurance

Catastrophe Bond

Catastrophe Model

Collateral (see also ‘Asset- Backed Security’)

Collateralized Obligations

(CDOs, CLOs, CBOs)

Combined Ratio

Commercial Paper


Catastrophe Bond

Constant Proportion

Portfolio Insurance (CPPI)

Contractual Trust Arrangement (CTA)

Convertible Bond


Correlation & Correlation Risk (see also ‘Variance’)

Credit Crunch

Credit Default Swap (CDS)

Credit Derivatives

Cost of Carry

Cost-to-Income Ratio

Counterparty Risk


Covered Bond

Credit Enhancement

Credit Rating

Credit-Linked Note (CLN)

Currency Overlay

Dedicated Long & Dedicated

Short Investing (Long Only & Short Only strategies)

Default & Default Rates

Deferred Annuity (see also ‘Annuity’)

Defined Benefit Plan

Defined Contribution Plan

Delta & Delta Hedging (see also ‘Greeks’)




Dividends & Dividend Cover

Duration Management, Duration Matching & Duration Risk


Efficient Frontier (see also ‘Markowitz, Markowitz Diversification’)

Equity-Linked Annuity

Event Risk

Excess of loss (reinsurance)

Expected Value, Expected Loss & Expected Return



Facultative reinsurance

Financial Guarantee Insurance (see also ‘Monoline Insurance’)

Financial reinsurance

Fixed Annuity

Floating Rate Note

Forwards (see also ‘Options’)




Generally Accepted Accounting Principles (GAAP)

Gamma (see also ‘Greeks’)


Gramm-Leach-Bliley Act


Gross Redemption Yield (see also ‘Delta’, ‘Gamma’)

Hedge Funds

Hedging & Dynamic Hedging

High-Yield Bond

Hurdle Rates

Hybrid Security


Illiquidity Premium

Immediate Annuity (see also ‘Annuity’)


Implied Volatility

Incurred but not reported (IBNR)

Inflation-Linked Bonds

inflation (CPI or RPI)

Internal Rate of Return (IRR)

Internal Ratings-Based Approach (IRB)

Investment Income



Junior debt (see also ‘Subordinated Debt’)

Junk bond


Knockout Options




Leverage & Leveraged Loan

Liquidity, Liquidity Risk & Liquidity Premium

Loan Loss Provision

Long Tail Event

Long/Short Positions & Long/Short Strategies

Loss Given Default (LGD)

Loss Portfolio Transfer


Markets in Financial

Instruments Directive (MiFID)

Markowitz, Markowitz Diversification


Minimum Variance Frontier

Monoline Insurance (see also ‘Wraps’)

Monte Carlo & Monte Carlo Simulation

Moral Hazard

Mortgage-Backed Securities

Net Asset Value (NAV)

Normal Probability Distribution





Pairs Trading (see also ‘Correlation & Correlation Risk')

Political Risk Insurance

Portable Alpha

Present Value

Price to Earnings (P/E) Ratio

Primary Market (see also ‘Secondary Market’)

Prime Broker & Prime Brokerage

Private Placement

Product recall (insurance)

Probability of Default (PD)


Qualifi ed Institutional Buyer (QIB)

Quantitative Analysis & Quantitative Management


Quota Share


Random Walk Theory

Ratings Agencies


Recovery Rate


Repurchase Agreement (Repo)

Return on Assets (ROA)

Return on Invested Capital (ROIC)

Return on Equity (ROE)

Rho (see also ‘Greeks’)

Risk Management

Risk Premium

Risk Weightings (see also ‘Basel I & Basel II')


Secondary Market (see also ‘Primary Market’)



Sharpe Ratio

Solvency II

Special Purpose Vehicle (SPV)

Standard Deviation

Standardized Approach (see also ‘Basel I & Basel II')

Statistical Arbitrage
Stochastic Analysis

Structured Investment Vehicle (SIV)

Subordinated Debt

Super Senior Tranche

Systemic Risk

Tier I Capital

Tier II Capital

Tier III Capital

Tobin Q

Total Return

Total Return Swap

Tracking Error

Tranches & Tranching


Uninsurable Risk


Value at Risk (VAR)


Variable Annuity





Weather Derivatives


Yen Carry Trade

Zero-Beta Portfolio

Zero-Coupon Bond

Zero-Sum Game

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