Mezzanine Financing: Tools, Applications and Total Performance

Glossary

Abuse of law Provision in legislation that intends to capture situations where parts of material are being used to construct (legal) situations that although not conflicting with the literal reading of the law are conflicting with the underlying philosophy and intent of that particular piece of legislation. Often to be found in commercial and tax legislation, but also in civil and criminal codes. The consequence is often that the regulator can look through the designed structure or re-qualify the consequences of the structure.

Binomial option pricing One of the methods to value options, based on a generalizable numerical method (based on algorithms that use numerical approximation). It uses a ‘discrete-time’ (lattice) model of the varying price over time of the underlying financial instruments.

Black–Scholes formula Default model to value options based on five critical inputs and a number of assumptions.

Call option Financial derivative that allows the holder to buy a certain asset (underlying the option) at a certain price and at a certain time or period in the future.

Capital protection (soft, hard) Capital protection is a clause in many fixed-income contracts that points to the fact that the holder is protected against a permanent impairment of the capital invested. Initially that protection was permanent and non-conditional. Over time, variations of soft protection clauses have emerged in contracts whereby the protection is either conditional and/or no longer 100% ...