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To determine a set of consistent notations for the book is important. This book is about Financial Models. Appropriate choice of notations would enable the unambiguous specifications of the models and provide clarity to the readers. However, to determine such a set of notations is particularly challenging for this book. The financial models cover the capital markets and corporate finance. In each sub-field of finance, there are standard notations and therefore finding consistency across these sub-fields can be complex.

To accomplish this task, our choice of notations follows some guidelines stated below.

- Maintain the accepted notations in the standard literature as much as possible.
- Use capital letter to denote securities or present values of cash flows, with subscript u and d denoting upstate and downstate respectively.
- denotes the period and the state of the world
- time is denoted by or , , . or n denote the calendar time as time passes. is the maturity date or the expiration date in calendar time. is the time-to-maturity
- is capitalization of the firm or the stock price
- is a forward contract or futures contract at time state , expiring at calendar time , delivering a zero coupon bond with the time-to-maturity .
- denotes the period, state, time-to-maturity bond i.e., the discount function at the node . The par value is $1.
- is a default free bond that may have coupon at node with a maturity date . is the default free bond that has a maturity . The par value is $100.
- is the default bond with maturity date at . The convention is similar to .
- is the firm value or project value
- is the call option with expiration date .
- is the put option
- is an asset
- is a liability
- is a fixed asset
- is cash flow, is free cash flow, is net cash flow,
- is the yield of a zero-coupon bond with maturity at node . Hence it is the yield curve or the transfer pricing curve. is continuously compounding rate. is semi-annual compounding risk-free rate. is the one period risk-free rate.
- and denote the foreign risk-free interest rate and the domestic risk-free interest rate, respectively.
- and denote the spot exchange and the forward exchange rate, respectively.
- is the yield of a zero-coupon bond, which is not a benchmark representing time value.
- is the fixed cost
- is for margins, like profit margin, or the number of sub-periods
- is for premiums, like default premium, risk premium
- is for tax rate with subscripts denoting the type of taxes.
- is the risk neutral probability
- is the market probability
- denotes volatilities.
- is the variance-covariance matrix
- is the correlation matrix
- is the cumulative normal distribution function with mean zero and standard deviation 1.
- is random error or noise
- is the normal distribution over an (infinitely) short time , with mean zero and standard deviation
- bold letter represents vector
- : the tilde letters mean the stochastic movement
- : the bar letters mean the expected value
- Euclid font type is used for book values

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