Glossary / a shared vocabulary
The language
of the decision.
Plain-language definitions for optimization, portfolios, risk, and energy systems.
What optimization actually is, in ordinary language.
Optimization
Choosing an objective and searching for a good or optimal decision among the choices allowed by a set of constraints.
Constraint
A rule the answer is not allowed to break. "Hold no more than 5% in any one company." "Do not sell anything bought in the last 30 days." "Never discharge the battery below 20%."
Why it matters here Constraints are what make the problem hard. Without them, most of these questions would be easy.
Feasible
An answer that satisfies the modeled constraints within the specified numerical tolerances. Feasibility alone does not establish that a decision is optimal or suitable for execution.
Near-optimal
An answer close to the optimum under a stated measure and tolerance. The size and practical significance of the remaining gap depend on the model and application.
Solver
The software that does the searching. You hand it the problem and the rules; it hands back an answer.
Why it matters here PRISM is a solver built for problems that must be answered by a fixed moment in time.
Deadline-bounded
A problem where the answer is worthless if it arrives late, even if it is perfect. The market opens; the grid tick closes; the trading window shuts.
Why it matters here This is the whole idea behind PRISM. The deadline is a hard rule, not a preference.
Deterministic
A computation that produces the same result from the same inputs and specified execution conditions. Reproducibility requirements should identify configuration, software, hardware, and numerical tolerances.
Audit trail
A record of why a decision was made — which rules applied, what the inputs were, what came out.
Why it matters here In regulated finance, "the computer decided" is not an acceptable explanation.
Terms from wealth and asset management.
Direct indexing
Instead of buying one fund that tracks an index, you buy the individual shares that make up that index, in your own account. It costs more to run, but because you own the actual shares you can customise and manage tax on each one.
Why it matters here It creates millions of individual portfolios that each need their own calculation — the workload PRISM was built for.
Householding
Treating all the accounts belonging to one family as a single picture — joint accounts, IRAs, trusts, each child's account — rather than optimising each one in isolation.
Why it matters here Much harder, because a good decision in one account can be a bad one for the household.
Tax-loss harvesting
Deliberately selling an investment that has lost value to book the loss, which offsets tax owed on gains elsewhere, then buying something similar to stay invested.
Why it matters here Real money. Doing it well across thousands of accounts is a large, repetitive calculation.
Harvestable tax budget
The maximum tax benefit actually available to capture in a given account over a period. It is a ceiling, not a target.
Why it matters here "Captured the full $238K budget" means all of what was available was collected — not that $238K was created out of nowhere.
Wash sale
A tax rule: if you sell at a loss and buy the same or a very similar investment within 30 days, you don't get to claim the loss.
Why it matters here It turns a simple sell decision into a rule with sharp edges and a memory.
Tax lot
Each separate purchase of the same investment, tracked individually with its own purchase date and price. 100 shares bought in three batches is three lots.
Why it matters here Which lot you sell changes the tax bill, so the choice is part of the optimization.
Rebalancing
Adjusting a portfolio back toward its intended mix after prices drift it out of shape.
Why it matters here Routine for one account. At tens of thousands of accounts, against a deadline, it is an infrastructure problem.
Book
All the accounts or positions a firm manages, taken together. "Pricing the whole book" means computing every account.
Why it matters here The book, not the single account, is the real unit of work.
Universe
The full set of investments the optimizer is allowed to choose from. A 75,000-asset universe means 75,000 candidates.
Why it matters here The larger the universe, the harder the problem grows.
Turnover
How much of a portfolio is bought and sold in a period. High turnover means more trading, more cost, more tax.
Why it matters here Usually capped, which is another constraint.
Tracking error
How far a portfolio drifts from the index it is meant to follow. Low tracking error means it behaves like the index.
Why it matters here The tension at the heart of direct indexing: customise and manage tax, without drifting too far.
Risk attribution
Breaking down where a portfolio's risk actually comes from — how much from the whole market, an industry, a style, and how much specific to individual holdings.
Why it matters here Tells you what you're actually exposed to, rather than just the total.
Factor
A shared force that moves many investments together — the overall market, company size, industry, value versus growth.
Why it matters here Factors are why a portfolio can look diversified and still be exposed to one thing.
SMA
Separately Managed Account. A portfolio owned directly by one client and managed to their situation, rather than a pooled fund shared with strangers.
Why it matters here The vehicle direct indexing is usually delivered through.
After-tax alpha
The extra return that survives after tax. A strategy that beats the market before tax and loses to it after tax has no after-tax alpha.
Why it matters here The number a taxable investor actually keeps.
Basis point
One hundredth of one percent. 50 basis points = 0.50%.
Why it matters here Standard shorthand in finance for small differences that compound into large sums.
How response time is measured honestly.
Latency
How long something takes to respond, from asking to getting an answer.
Why it matters here For a deadline-bounded workload, latency is the product.
p50, p95, p99
Percentiles. p50 is the middle: half of runs were faster. p95 means 95% were faster and 5% were slower. p99 is the slowest 1%.
Why it matters here Averages hide the failures. A system with a fine average and a terrible p99 misses deadlines where it hurts.
Tail latency
The slow outliers — the p95 and p99 cases.
Why it matters here A batch finishes when its slowest member finishes, so the tail sets the real completion time, not the average.
Terms from the electricity side.
Dispatch
Deciding what each power resource should do right now — charge, discharge, hold, produce more, produce less.
Why it matters here Must be recomputed continuously as prices and demand move.
DER
Distributed Energy Resources. Small power assets spread across the grid instead of one large plant: rooftop solar, home and commercial batteries, EV chargers, backup generators.
Why it matters here Thousands of small assets to coordinate rather than a handful of big ones.
VPP
Virtual Power Plant. Many distributed resources coordinated so that together they behave like a single power plant.
Why it matters here Structurally very similar to managing a portfolio of accounts — which is why one engine serves both.
State of charge
How full a battery is right now.
Why it matters here It links time periods together: energy used now is unavailable later, so the intervals can't be solved separately.
Control tick
The fixed heartbeat of a grid control system. Each tick it looks at the current state and issues new instructions.
Why it matters here The tick does not wait. Miss it and the previous plan stands.
CAISO / ISO
An ISO (Independent System Operator) runs the electricity grid for a region and matches supply to demand. CAISO is California's.
Why it matters here Real CAISO data is what the energy dispatch results were measured on.
Terms from bank capital rules.
Regulatory capital
The cushion of its own money a bank is required by law to hold against the risks it takes, so that losses hit the bank's owners before its depositors.
Why it matters here Capital is expensive, so how it is calculated matters enormously.
FRTB
Fundamental Review of the Trading Book. The international rules governing how banks calculate the capital they must hold against trading risk.
Why it matters here It changed the calculation, which changed what banks have to hold.
Standardised approach
The regulator's prescribed formula for calculating required capital, as opposed to a bank's own internal model.
Why it matters here The formula is fixed, but how a portfolio is arranged within it is not — and that is an optimization problem.
Put the terms to work