Securitization is a method that encompasses the pooling and transferring of the ownership of assets that generate cash flow, such as loans or receivables, to a special legal entity. This entity then offers securities, which are underpinned by these assets,…

Cost of Capital The cost of capital is the rate of return the suppliers of capital (shareholders and debtholders) require as compensation for their capital contribution. In other words, the cost of capital can be seen as the opportunity cost…

Custom Fee Arrangements Hedge fund fees are often split into management and incentive fees. For example, a “2 and 20” fee structure implies that a fund manager charges an investor a 2% management fee based on the asset under management…

Macro risk originates from political, economic, legal, and other institutional factors in an economy, country, or region. As such, some of the factors that catalyze macro-risk include exchange rates, political instability, and gaps in legal or financial structure. Business risks…

Cost of Carry The cost of carry is defined as the net of the costs and benefits. The term “carry” is analogous in that storage (or holding) of an asset attractcts net costs i.e, the costs to “carry” an asset….

It is economically healthy to exclude the effect of general price changes when calculating the GDP. This is because higher (lower) income caused by inflation does not indicate a higher (lower) level of economic activity. Real GDP Economists describe real GDP…

There are two approaches used in the calculation of the Gross Domestic Product (GDP). The first one is the income approach. This method measures GDP as a summation of all income generated in the economy in a given year. The…

A variable \(X\) is said to have a lognormal distribution if \(Y = ln(X)\) is normally distributed, where “ln” denotes the natural logarithm. In other words, when the logarithms of values form a normal distribution, we say that the original…