Special Topics in Finance

Forecasting

Estimating future events or trends based on historical data, current conditions, and other relevant information.

Financial Modeling

The process of developing a mathematical representation of a financial situation or the performance of a business, asset, project, or investment.

Scenario Analysis

Evaluates the potential effects of different hypothetical situations.

Sensitivity Analysis

Determines how changes in one or more input variables in the model affects the output of the model.

Monte Carlo Simulation

A statistical technique used to model and analyze the impact of uncertainty in financial forecasts.

Inflation

The rate at which prices increase, causing a gradual loss of purchasing power.

Purchasing Power

The quantity of goods I can buy with the money I have.

Consumer Price Index (CPI)

The average price for a 'basket' of goods and services.

Call Options

A contract that gives you the right to buy a stock from another person at a predetermined price on or before a specific date in the future.

Zero Sum

Options are speculative in nature because it depends upon the price of the stock, not necessarily the value.

Long Position

An investor purchases shares of stock.

Buying on Margin

Purchasing stock with borrowed money from a broker.

Short Selling

Selling borrowed stock.

Order Types

A set of instructions you give to your broker for how you want to execute a trade.

Market Order

Buy/sell immediately at the best price.

Price Contingent Order

Buy/sell at specified price or better; trade depends on the price and investor defined rules.

Limit Buy Order

Specifies price at which investors will buy.

Limit Sell Order

Specifies price at which investor will sell.

Stop Loss Order

Sell when price falls below a point.

Stop Buy Order

Buy when price goes above a point.

Limit Order Book

A record of all outstanding limit orders (not yet executed) for a particular security on an exchange.

Passive Investing

Buying a diversified portfolio of securities and holding that portfolio for a long time (decades).

Dividend Investing

Focus on buying stocks that pay high and stable dividends and then reinvesting those dividends by purchasing more shares of stock in the company that paid the dividends.

Active Investing

Frequent buying and selling of securities in an attempt to outperform a specific benchmark or market index.

Fundamental Analysis

Evaluating a stock's intrinsic value by examining related economic, financial, and other qualitative and quantitative factors about the company.

Technical Analysis

Studying past markets data, primarily price and volume data, to forecast future price movements of stocks.

Factor Investing

Using specific characteristics of companies to help you select which stocks to include in your portfolio.

Derivative

securities whose value is determined by and based upon the value of another asset; the value is derived from an underlying asset