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Value-added tax: Method of indirect taxation whereby a tax is levied at each stage of production on the value added at that specific stage.

Value-at-Risk model (VAR): Procedure for estimating the probability of portfolio losses exceeding some specified proportion based on a statistical analysis of historical market price trends, correlations, and volatilities.

Value additivity principal: Prevails when the value of a whole group of assets exactly equals the sum of the values of the individual assets that make up the group of assets. Stated differently, the principle that the net present value of a set of independent projects is just the sum of the net present values of the individual projects.

Value date: In the market for Eurodollar deposits and foreign exchange, value date refers to the delivery date of funds traded. Normally it is on spot transactions two days after a transaction is agreed upon and the future date in the case of a forward foreign exchange trade.

Value dating: Refers to when value or credit is given for funds transferred between banks.

Value manager: A manager who seeks to buy stocks that are at a discount to their "fair value" and sell them at or in excess of that value. Often a value stock is one with a low price to book value ratio.

Value of a basis point: Methodology which calculates the change in present value of a financial instrument or portfolio of instruments due to a one basis point change in interest rates.

Vanilla issue: A security issue that has no unusual features.

Variable: A value determined within the context of a model. Also called endogenous variable.

Variable annuities: Annuity contracts in which the issuer pays a periodic amount linked to the investment performance of an underlying portfolio.

Variable cost: A cost that is directly proportional to the volume of output produced. When production is zero, the variable cost is equal to zero.

Variable life insurance policy:
A whole life insurance policy that provides a death benefit dependent on the insured's portfolio market value at the time of death. Typically the company invests premiums in common stocks, and hence variable life policies are referred to as equity-linked policies.

Variable price security: A security, such as stocks or bonds, that sells at a fluctuating, market-determined price.

Variable rate CDs: Short-term certificate of deposits that pay interest periodically on roll dates. On each roll date, the coupon on the CD is adjusted to reflect current market rates.

Variable rated demand bond (VRDB):
Floating rate bond that can be sold back periodically to the issuer.

Variable rate loan:
Loan made at an interest rate that fluctuates based on a base interest rate such as the Prime Rate or LIBOR.

Variance: A measure of dispersion of a set of data points around their mean value. The mathematical expectation of the squared deviations from the mean. The square root of the variance is the standard deviation.

Variance minimization approach to tracking: An approach to bond indexing that uses historical data to estimate the variance of the tracking error.

Variance rule: Specifies the permitted minimum or maximum quantity of securities that can be delivered to satisfy a TBA trade. For Ginnie Mae, Fannie Mae, and Freddie Mac pass-through securities, the accepted variance is plus or minus 2.499999 percent per million of the par value of the TBA quantity.

Variation margin: An additional required deposit to bring an investor's equity account up to the initial margin level when the balance falls below the maintenance margin requirement.

Vega:
The sensitivity of the option price to a change in volatility.

Venture capital: An investment in a start-up business that is perceived to have excellent growth prospects but does not have access to capital markets. Type of financing sought by early-stage companies seeking to grow rapidly.

Vertical acquisition:
Acquisition in which the acquired firm and the acquiring firm are at different steps in the production process.

Vertical analysis: The process of dividing each expense item in the income statement of a given year by net sales to identify expense items that rise faster or slower than a change in sales.

Vertical merger: A merger in which one firm acquires another firm that is in the same industry but at another stage in the production cycle. For example, the firm being acquired serves as a supplier to the firm doing the acquiring.

Vertical spread: Simultaneous purchase and sale of two options that differ only in their exercise price.

Virtual currency option:
A new option contract introduced by the PHLX in 1994 that is settled in US$ rather than in the underlying currency. These options are also called 3-Ds (dollar denominated delivery).

Visible supply: New muni bond issues scheduled to come to market within the next 30 days.

Volatility: A measure of risk based on the standard deviation of investment fund performance over 3 years. The scale is 1-9; higher rating indicates higher risk. Also, the standard deviation of changes in the logarithm of an asset price expressed as a yearly rate. Also, volatility is a variable that appears in option pricing formulas. In the option pricing formula, it denotes the volatility of the underlying asset return from now to the expiration of the option.

Std Deviation Rating Std Deviation Rating

up to 7. 99 1 20. 00-22. 99 6

8. 00-10. 99 2 23. 00-25. 99 7

11. 00-13. 99 3 26. 00-28. 99 8

14. 00-16. 99 4 29. 00 and up 9

17. 00-19. 99 5

Volatility risk: The risk in the value of options portfolios due to the unpredictable changes in the volatility of the underlying asset.

Volume: This is the daily number of shares of a security that change hands between a buyer and a seller.

Voting rights: The right to vote on matters that are put to a vote of security holders. For example the right to vote for directors.

Voting Trust: A device to place the control of a company in the hands of certain managers for a given period of time, or until certain results have been achieved. This is done by shareholders surrendering their voting rights to a trustee for a specified period of time.