Glossary: terms starting with D

Leveraged ETFs and factor certificates restore their leverage every trading day: after gains they buy more, after losses they sell. This keeps leverage constant, but makes the return path-dependent over longer periods. The leverage per security in the Portfolio Lab backtest works the same way, adjusted every day using daily prices.

Example: Index +10%, then −10% (−1% in total): 2x leverage reset daily −4%, in a margin account without adjustment −2%.

Source: Cheng and Madhavan (2009); Avellaneda and Zhang (2010)

More: Leverage in a portfolio: return, risk, costs and margin calls · Methodology: Backtest methodology: data, process, rebalancing and costs

Repeatedly analyzing the same historical data until patterns emerge. The effects found are then partly due to chance and weaken out of sample.

Source: McLean and Pontiff (2016)

More: Backtest overfitting: when the past looks too good

Rule for how days and the year are counted in interest calculations: act/act (actual days divided by the actual days of the coupon period, common for government bonds), 30/360 (every month 30 days, the year 360) or act/360 (actual days divided by 360, common in the money market).

Source: Tuckman and Serrat (2012)

More: Bond math: calculating price, yield, duration, convexity and spreads

Time by which orders for fund units must reach the fund company in order to be settled at the next net asset value. Because this value is only determined afterward, nobody knows the settlement price when placing the order.

More: Index providers and valuation points: why the same index is calculated differently

Debt service coverage ratio: cash flow available for debt service (CFADS) divided by the period's interest and principal payments. Values above 1 mean debt service is covered. Lenders size the loan to a minimum DSCR and tie covenants to thresholds; the path of the DSCR is the basis of structural credit risk models for project finance.

Example: CFADS of $13 million and a minimum DSCR of 1.30 allow $10 million of debt service a year; if CFADS falls by more than 23.08%, it is no longer covered.

Source: Blanc-Brude and Hasan (2016); Blanc-Brude et al. (2018)

More: Infrastructure investing: equity and debt, revenue models, valuation and research

Companies with stable demand even in downturns, e.g. utilities, consumer staples or healthcare. They usually have a low beta.

Retirement contributions remain tax-free or deductible during the saving phase; in return, the benefits are taxed in retirement at the personal tax rate that applies then. The advantage depends on the difference between your marginal tax rate today and in retirement.

Source: EStG § 22 (2009)

A Sharpe ratio corrected for the number of strategies tried, the length of the series, and the skewness and kurtosis of the returns. It indicates how likely it is that the observed Sharpe ratio reflects genuine skill rather than luck.

Source: Bailey and López de Prado (2014)

More: Backtest overfitting: when the past looks too good

Reducing leverage through sales or repayment. When many leveraged investors sell at the same time, e.g. after margin calls, they push prices down and trigger further sales. The result is a liquidity spiral of the kind seen in financial crises.

Source: Geanakoplos (2010); Brunnermeier and Pedersen (2009)

More: Leverage in a portfolio: return, risk, costs and margin calls

How much the option price changes when the underlying rises by one unit. A call with a delta of 0.5 gains about 50 cents when the stock rises by $1.

More: Option pricing: where fair option prices come from · Methodology: Option pricer: how Portfolio Lab values options

Hedging an option position with the underlying in proportion to the delta, so that small price moves barely change the result. Because delta changes with the price (gamma), the hedge has to be adjusted continuously.

Example: 1,000 calls with a delta of 0.57 are hedged by selling 570 shares short.

More: Short selling, hedge funds and hedging: types and how they work · Methodology: Option pricer: how Portfolio Lab values options

Statutory protection of bank balances in a bank failure, up to a limit per depositor and bank: in the EU, for example, €100,000, and temporarily more for certain credits such as the proceeds of a property sale. Securities such as ETFs are not deposits; they are protected as segregated assets.

Source: EinSiG § 8 (2015); Directive (EU) 2026/804 (2026)

A high-income country with a developed capital market, such as the US, Japan or Germany. Indices such as the MSCI World contain only developed markets.

More: World portfolio: the whole world in one or two ETFs

A test of whether two forecasts are equally accurate. It relates the mean difference between their losses, e.g. the squared errors, to its standard error and allows any loss function as well as autocorrelated, non-normally distributed errors.

Source: Diebold and Mariano (1995)

More: Return forecasting models: ARIMA, GARCH, LSTM and machine learning

The planned digital central bank money of the Eurosystem for payments, as a complement to cash. The regulation is in the legislative process (as of October 2026); the ECB wants to be ready for a possible first issuance in 2029 if the law is adopted in 2026.

Source: ECB (2025); European Parliament (2026)

More: Digital assets: tokenization, stablecoins, crypto securities and the digital euro

Option with a fixed payout if the price at maturity is above (call) or below (put) the strike, and nothing otherwise. Its price is the discounted amount times the risk-neutral probability of ending in the money.

Methodology: Option pricer: how Portfolio Lab values options

Decline in the percentage stake of existing shareholders when new shares are issued (in financing rounds, options or conversions). It costs nothing as long as the value per share at least stays the same; in a down round, by contrast, the value falls too.

Example: Someone holding 7 of 10 million shares who accepts 4 million new shares falls from 70% to 7 / 14 = 50%.

More: Venture capital: funding rounds, valuation, the power law and what research knows about returns

The largest strategy in private credit: a fund lends directly to a company, often to finance a takeover by a private equity firm. Often structured as a unitranche, i.e. a single loan instead of several senior and junior tranches.

Source: Block et al. (2024)

More: Private credit and public credit compared: returns, risks and what the research shows

Transactions by persons discharging managerial responsibilities at an issuer, such as members of the management and supervisory boards, and by persons closely associated with them, in the issuer's shares, debt instruments or derivatives. Under Art. 19 of the EU Market Abuse Regulation (MAR), they must be reported no later than three business days after the transaction; in Germany, a threshold of €50,000 per calendar year has applied since January 1, 2026.

Source: MAR (2014); BaFin, managers' transactions (2025)

More: Insider trading: what is prohibited, what is allowed and what insider purchases reveal

A certificate that is bought below the price of the underlying and pays out the price at maturity, but no more than the cap. Decomposed: the underlying without dividends minus a call struck at the cap. The discount is made up of dividends and option premium.

Example: Share $100, cap $90, ask price $84: discount 16%, maximum return 90 / 84 − 1 = 7.14%.

Source: Wilkens et al. (2003); Baule et al. (2008)

Methodology: Option pricer: how Portfolio Lab values options

A valuation method that discounts a company's expected free cash flows to today at the cost of capital (WACC) and adds a terminal value for the period after the detailed forecast. Subtracting net financial debt leaves the value of the equity.

Source: Damodaran (2012)

More: Fundamental analysis: valuing a company like an investor

A pattern looks the same when the scale is stretched by certain factors λ, λ², …, but not by arbitrary factors. The physical basis of the log-periodic oscillations before a critical point such as a crash.

Source: Feigenbaum and Freund (1996); Johansen, Sornette and Ledoit (1999)

More: Speculative bubbles: what they are and how the LPPLS model detects them

Tendency to sell winners too early and hold on to losers too long, so as not to have to admit a loss. Usually unfavorable in terms of both tax and returns.

Pair selection following Gatev, Goetzmann and Rouwenhorst: prices are normalized to 1, and each security is matched with the partner that has the smallest sum of squared distances. A trade is opened when the distance exceeds two standard deviations of the formation period.

Source: Gatev et al. (2006)

More: Pairs trading and statistical arbitrage: idea, methods, research · Methodology: Long/short and statistical arbitrage: methodology

A shared register that many computers maintain together and reconcile through a consensus mechanism. The best-known design is the blockchain, in which transactions are recorded in linked blocks. Public networks (permissionless) are open to everyone, private ones (permissioned) only to approved participants.

More: Digital assets: tokenization, stablecoins, crypto securities and the digital euro

A fund that pays dividends and interest out to investors, usually quarterly or annually. The opposite is accumulating.

More: ETF basics: costs, replication and distributions

Spreading money across investments that do not move in lockstep. It pushes the portfolio's volatility below the average of the individual volatilities.

More: Correlation and diversification: why mixing assets reduces risk

A proposal by Ayres and Nalebuff: when you are young, you have little capital but a lot of future income. Using leverage in your early years and holding fewer equities later in life spreads equity risk more evenly over your working life than a fixed allocation applied to a portfolio that starts out small.

Source: Ayres and Nalebuff (2008); Ayres and Nalebuff (2010)

More: Leverage in a portfolio: return, risk, costs and margin calls

The weighted sum of the individual volatilities divided by the volatility of the portfolio. 1 means no diversification effect; the higher it is, the more the fluctuations offset each other.

Source: Choueifaty and Coignard (2008)

More: Risk parity: equal risk contributions instead of equal weights

Payment from a derivative that refers to the dividend of a US stock and, under Section 871(m), can be subject to US withholding tax like a dividend. A qualified index, by contrast, counts as a security in its own right. This is where the tax advantage of swap ETFs on broad US indices comes from.

Source: US Section 871(m) Rules (2015); Mellor (2022)

More: Index replication: full replication, optimized sampling and swaps

Dividends paid over the last twelve months divided by the price. It is only one part of the total return; since the 1980s, share buybacks have increasingly replaced dividends.

More: Shiller P/E (CAPE): how expensive is the stock market?

Average excess return of an equally weighted basket of all foreign currencies against the US dollar; it captures the common movement of currencies against the dollar. Alongside it stands the slope factor HML-FX (high- minus low-interest currencies), which according to Lustig et al. (2011) explains most of the differences in returns.

Source: Lustig et al. (2011)

More: Carry trade: earning interest with currencies and bonds · Methodology: Carry backtest: methodology for FX and bond carry

The share of a benchmark's losses that a portfolio takes part in during the benchmark's negative periods. Below 100 means it lost less than the index. A good ratio relative to upside capture matters more than either value on its own.

Source: Bacon (2008)

More: Beta and alpha: how closely a fund moves with the market

Volatility on the downside only: the square root of the average squared shortfall below a minimum return. The basis of the Sortino ratio.

More: Sortino ratio and Calmar ratio: measuring downside risk

Distributed to paid-in: distributions divided by paid-in capital. Shows how much a fund has already returned in cash and, unlike TVPI, does not depend on valuations. Early distributions funded by NAV financing can, however, pull it forward.

Example: Paid in 95, distributed 35: DPI = 35 / 95 = 0.37.

Source: ILPA (2024)

More: Measuring private markets: J-curve, cash flows, smoothing and public proxies

Distance from the keel to the waterline. The more cargo, the lower a ship sits in the water, which is why the draft is used to estimate whether it is loaded. In AIS, the crew enters the draft by hand, often late; errors are common.

Source: IMO (2015); Cerdeiro et al. (2020)

More: Ship tracking data and satellite images: what they reveal about commodities · Methodology: Ships at chokepoints (beta): methodology

Decline from the previous peak to the current value, in percent. The deepest point in the period is the maximum drawdown.

More: Maximum drawdown: the largest loss from a peak

The time from a peak until the value returns to that level. For investors it is often harder to bear than the depth: after 2000, broad equity indices needed many years to regain their old highs.

More: Maximum drawdown: the largest loss from a peak

Capital committed to private markets funds but not yet called (for one fund or the whole market). A lot of dry powder means a lot of money that has to be invested; according to Kaplan and Strömberg (2009), high inflows into private equity go hand in hand with lower subsequent returns.

Source: Kaplan and Strömberg (2009)

More: Measuring private markets: J-curve, cash flows, smoothing and public proxies

Rule by Gary Antonacci: the asset with the best 12-month return is held, but only if it has also beaten the money market; otherwise bonds or the money market.

More: Tactical allocation: momentum, dual momentum and trend following

Standardized set of questions (DDQ) that investors use to vet a manager: organization, ownership, processes, risk management, valuation, compliance, service providers, costs. Common templates are the ILPA DDQ for private markets and the AIMA model questionnaire.

Source: ILPA DDQ (2021); AIMA (2025)

More: RFP and mandate awards: how institutional investors select asset managers

An explanatory variable in a regression that takes only the values 0 or 1, e.g. 1 for periods in the winter half-year. Its coefficient measures the average difference between the two groups; its t-test is equivalent to the two-sample t-test with pooled variance.

Example: r = μ + α × S: with S = 1 in winter, α is the excess return of winter over summer.

More: Stock market seasonality: Sell in May, the January effect and how to test calendar effects

How strongly a bond's price reacts to changes in interest rates. A modified duration of 8 means: about −8% for a one percentage point rise in rates.

Example: A 10-year bond with a 3% coupon at a 3% yield has a modified duration of 8.53.

More: Duration: how strongly bonds react to interest rates

Position of bought and sold bonds of different maturities with the same duration on both sides. A parallel shift of the yield curve then roughly cancels out and what counts is the steepness: long the short end and short the long end is a steepener, the reverse a flattener.

Example: 5 years of duration per side: two-year par bond at 3% with semi-annual coupon, duration 1.93 → weight 259%; ten-year bond at 4% with duration 8.18 → 61%.

More: Carry trade: earning interest with currencies and bonds · Methodology: Carry backtest: methodology for FX and bond carry