CFA® glossary: U

11 terms beginning with U.

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Unconditional probability

The probability of an event with no condition attached, also called the marginal probability. Weighting its conditional probabilities by the chance of each scenario and adding them recovers it.

Uncovered interest parity

The theory that the expected change in an exchange rate offsets the interest rate differential, so unhedged foreign deposits earn the same expected return. It often fails in the short run, which the carry trade exploits. Where it appears →

Underemployment

Working part time when full time is wanted, or in a job well below one's qualifications. Such people count as employed, so the unemployment rate misses this slack entirely.

Underwriter

A bank that manages a new issue, gauges demand and sets the price, often guaranteeing the proceeds by buying the securities itself and reselling them.

Unfunded commitment

Capital an investor has promised to a private fund but not yet been asked for. It must be paid on demand, so it matters for liquidity planning even though it appears nowhere in the portfolio's value. Where it appears →

Unit root

A lag coefficient of one in an autoregressive model, as in a random walk. A series with one is not covariance stationary, so regression results on it cannot be trusted until it is differenced. Where it appears →

Unitranche

A single loan, usually from one direct lender, replacing separate senior and subordinated debt at a blended rate between the two. The borrower pays more than for senior debt alone in return for speed and simplicity. Where it appears →

Unsmoothing

Adjusting an appraisal-based return series to remove the lag and smoothing appraisals introduce, typically by treating each reported return as a blend of the true one and the last reported one. Volatility and correlations rise. Where it appears →

Unsupervised learning

Machine learning on data with no labels, looking for structure the analyst did not specify, such as clustering similar items or condensing correlated variables into a few factors. Where it appears →

Upfront payment

Cash paid when a credit default swap starts, because its standard coupon differs from the fair spread: the buyer pays if the spread is above the coupon, and receives if below. Roughly (spread − coupon) × duration. Where it appears →

Useful life

The period over which an asset is expected to be used, estimated by management. A longer one spreads the cost thinner, lowering each year's depreciation and raising reported profit.