Financial Dictionary

The classification of an option contract as either a put or a call.

A method of taxation in which the income going to shareholders is taxed twice.

Often used in risk arbitrage. Takeover bid where the acquirer offers to pay more for the shares needed to gain control than for the remaining shares, or the same price but at different points in the merger period; contrasts with any-or-all bid.

An option pricing model in which the underlying asset can take on only two possible (discrete) values in the next time period for each value it can take on in the preceding time period. Also called the binomial option pricing model.

A market in which both bid and asked prices, good for the standard unit of trading, are quoted. Also, a situation where customers or market-makers are lined up on both sides (buy and sell) of the stock.

The theoretical result that all investors will hold a combination of the risk-free asset and the market portfolio.

Black’s zero-beta version of the capital asset pricing model.

Used for listed equity securities. Floor broker of the N.Y.S.E., who executes orders for other brokers (risk arbitrage) having more business at that time than they can handle with their own private floor brokers or who do not have their exchange member on the floor.

Mutual funds that do not charge an upfront or back-end commission, but instead take out up to 1.25% of average daily fund assets each year to cover the costs of selling and marketing shares, an arrangement allowed by the SEC’s Rule 12b-1 (passed in 1980).

The percent of a mutual fund’s assets used to defray marketing and distribution expenses. The amount of the fee is stated in the fund’s prospectus. The S.E.C. has recently proposed that 12B-1 fees in excess of 0.25% be classed as a load. A true ” no load” fund has neither a sales charge nor 12b-1 fee.