The Nash equilibrium is a decision theorem in game theory that states that a player can achieve a desired outcome without deviating from their original strategy.
In a Nash equilibrium, each player’s strategy is optimal when considering the decisions of other players. Every player wins because everyone gets the desired result.
The prisoner’s dilemma is a common game theory example that adequately demonstrates the Nash equilibrium effect.
The Nash equilibrium is often discussed in connection with the dominant strategy, which states that the strategy chosen by the actor will lead to the best outcomes of all possible strategies that can be used, regardless of the strategy used by the opponent.
Nash equilibrium does not always mean choosing the most optimal strategy.
An asset swap is used to convert cash flow characteristics in order to hedge risks from one financial instrument with undesirable cash flow characteristics to another with favorable cash flow characteristics.
A holding bag is a slang term for an investor who holds on to a badly performing investment, hoping it will bounce back when there is a chance it won’t.
The condition of covered parity of interest rates suggests that the relationship between interest rates and the spot and forward values of the currencies of the two countries are in balance.
Equity derivatives are financial instruments whose value is determined by the change in the price of the underlying asset, if that asset is a stock or stock index.
The forward price is the price at which the seller delivers the underlying asset, derivative or currency to the buyer of a forward contract on a predetermined date.
A hedged tender is a way to counteract the risk that the offering company will refuse some or all of the investor’s shares presented as part of the tender offer.
The Hollywood Stock Exchange (HSX) is an entertainment “stock market” where people can buy and sell virtual shares of celebrities and movies for a currency called the Hollywood Dollar®.
The International Swaps and Derivatives Association is a professional association that has been working since 1985 to promote and improve the trading of swaps and derivatives.
Letter of guarantee - an agreement issued by a bank on behalf of a customer who has entered into an agreement for the purchase of goods from a supplier.
External arbitrage is a type of arbitrage involving multinational US banks to take advantage of interest rate differentials between the US and other countries.