AIMA

The Alternative Investment Management Association

Alternative Investment Management Association Representing the global hedge fund industry

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Glossary

AIMA's Glossary has been developed for all those with an interest in the alternative investment industry - from the beginner to the advanced practitioner.

You will find a considerable overlap of content with the traditional fund management industry - the instruments used, the service providers employed, etc.  However, the hedge fund industry is individual in the way in which it uses these resources.

For reasons of law and accuracy, this is not a wiki.  It is a work-in-progress, however, and we invite you to submit new items for inclusion below (including the proposed definition).

  • We express our sincere thanks to Stanley Marchon, Vincent Kuhn, Nicolas Watin-Augouard, Stephen Foster and Sunil Gopalan for the creation of this resource. 
  • Special thanks are also extended to Anne Taulbut and Jennifer Nye of Katten Muchin Rosenman Cornish for the extensive legal review.
 
benchmark

Any basis of measurement (security or index), used as a reference point, against which a comparison and evaluation of performance of an investment portfolio can be made.

beta

Beta (β) of a portfolio is the portfolio’s sensitivity to market movements. It represents the change in the portfolio’s return for every 1% change in the market return. The sign of the beta (+/-) indicates whether, on average, the portfolio’s returns move in line with the market (+) or in the opposite direction (-). If β = 1.0, returns tend to mirror the market.  If β = 2.0, returns tend to be twice those of the market.  If β = -0.5, returns tend to be half that of the market.

beta neutral

Describes a fund with no sensitivity to broad market movements. Therefore, the fund's beta is close to zero.

bid

The purchase price offered for a commodity, currency, security or other asset.

Black-Scholes model
An algorithm/formula created by Fischer Black and Myron Scholes in 1973, used to estimate the fair value of a stock option at the grant date using the following variables: the expected risk-free interest rate, stock price, exercise price, volatility, and expected option term.
board of trade

A US term used to define any organized exchange or other trading facility for the trading of commodities.

bond

A debt security issued by entities such as corporations and governments in return for cash from the lender (investor). The issuer of a bond is effectively a borrower and is therefore required to pay interest to the lender throughout the life of the bond (at periodic intervals) and to repay the principal amount of the loan at maturity.

bond futures arbitrage

An approach that aims to profit from pricing inefficiencies between bonds and corresponding bond futures.

bottom-up investment process

An approach that seeks to identify investments that will produce strong returns, before assessing the influence that economic factors will have on those assets.

broker

A person paid a fee or commission for executing buy or sell orders for a customer.

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