synthetic investment

synthetic investment
USA
An investment that replicates, or attempts to replicate, the cash flows incident to ownership of an asset (usually a security, basket of securities, index or other financial instrument). An investment is said to be synthetic where there is no ownership of the underlying asset. This is usually accomplished through use of a derivative, most commonly a total return swap (TRS) or an equity swap.

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

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  • Synthetic CDO — A form of collateralized debt obligation (CDO) that invests in credit default swaps (CDSs) or other non cash assets to gain exposure to a portfolio of fixed income assets. Synthetic CDOs are typically divided into credit tranches based on the… …   Investment dictionary

  • Synthetic ETF — An investment that mimics the behavior of an exchange traded fund (ETF) through the use of derivatives such as swaps. Proponents of synthetic ETFS say they do a more accurate job of tracking indexes; critics say that synthetic ETFs face… …   Investment dictionary

  • Synthetic Forward Contract — A position in which the investor is long a call option and short a put option. The synthetic forward contract requires that both options be held simultaneously by a single investor, that have the same strike price and expiration date. This… …   Investment dictionary

  • Synthetic Call — An investment strategy that mimics the payoff of a call option. A synthetic call is created by purchasing the underlying asset, selling a bond and purchasing a put option. The strike price on the put option is equal to the face value of the bond …   Investment dictionary

  • synthetic replication — Method of constructing an investment with derivatives ( options, futures, etc.), enabling the fund manager to capture the performance of the index components with holding them directly. NYSE Euronext Glossary …   Financial and business terms

  • Real Estate Mortgage Investment Conduits - REMIC — A complex pool of mortgage securities created for the purpose of acquiring collateral. This base is then divided into varying classes of securities backed by mortgages with different maturities and coupons. As a synthetic investment vehicle,… …   Investment dictionary

  • Diamonds as an investment — An uncut diamond, not showing the prized optical properties of cut and polished versions. Contents 1 History 2 Price …   Wikipedia

  • total return swap — (TRS) A total return swap or total rate of return swap is a bilateral contract where one party receives the total return on a reference asset in exchange for paying the other party a periodic cash flow, typically a floating rate such as a LIBOR… …   Law dictionary

  • total rate of return swap — total return swap (TRS) A total return swap or total rate of return swap is a bilateral contract where one party receives the total return on a reference asset in exchange for paying the other party a periodic cash flow, typically a floating rate …   Law dictionary

  • TRS — total return swap (TRS) A total return swap or total rate of return swap is a bilateral contract where one party receives the total return on a reference asset in exchange for paying the other party a periodic cash flow, typically a floating rate …   Law dictionary

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