Haircut Definition

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Dec 232020
 

The collateral required in a repo over and above the cash lent out. The holder of the collateral is subject to market risk. If interest rates rise during the repo period, the value of the bond/collateral will fall. The buyer could own securities with a market value less than the amount loaned out. One way to address the market risk issue is that the amount loaned will be less than the market value of the securities being pledged. This difference is known as the margin or the haircut e.g. for a £10m bond and a haircut of 2% the seller will receive proceeds of £9,800,000. See Repurchase Agreement

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High Yield Definition

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Sep 272020
 

Bonds rated below ‘investment grade’ i.e. below BBB- for Standard and Poor’s and below Baa3 for Moody’s. Also known as speculative grade bonds, non investment grade bonds or (infamously) junk bonds. Unrated securities can also be classified as high yield if they trade at a wider spread than other corporates and at a level which is more comparable with other high yield bonds

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Historic Volatility Definition

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May 192020
 

The volatility of the price of an asset or financial instrument over a past period.

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