| |
| |
Foreword | |
| |
| |
| |
Foreword | |
| |
| |
| |
Preface | |
| |
| |
| |
Overview of Financial Engineering | |
| |
| |
| |
An Introduction to Financial Engineering | |
| |
| |
The Scope of Financial Engineering | |
| |
| |
The Tools of Financial Engineering | |
| |
| |
Financial Engineering Versus Financial Analysis | |
| |
| |
Where Financial Engineering Fits In | |
| |
| |
The Financial Engineering Team | |
| |
| |
Productizing the Solution | |
| |
| |
Career Opportunities For Financial Engineers | |
| |
| |
The Plan of the Book | |
| |
| |
| |
Factors Contributing to the Growth of Financial Engineering | |
| |
| |
The Environmental Factors | |
| |
| |
Price Volatility | |
| |
| |
Globalization of the Markets | |
| |
| |
Tax Asymmetries | |
| |
| |
Technological Advances | |
| |
| |
Advances in Financial Theory | |
| |
| |
Regulatory Change and Increased Competition | |
| |
| |
The Cost of Information and the Cost of Transacting | |
| |
| |
Intrafirm Factors | |
| |
| |
Liquidity Needs | |
| |
| |
Risk Aversion | |
| |
| |
Agency Costs | |
| |
| |
Quantitative Sophistication and Management Training | |
| |
| |
Accounting Benefits | |
| |
| |
Innovative Products of the Last Twenty Years | |
| |
| |
The Changing Face of the Securities Industry | |
| |
| |
| |
The Knowledge Base of the Financial Engineer | |
| |
| |
Theory | |
| |
| |
Mathematical and Statistical Skills | |
| |
| |
Modeling Skills | |
| |
| |
Product Knowledge | |
| |
| |
Knowledge of Relevant Technology | |
| |
| |
Accounting, Tax and Legal | |
| |
| |
The American Association of Financial Engineers | |
| |
| |
| |
The Conceptual Tools of the Financial Engineer | |
| |
| |
| |
Valuation Relationships and Applications | |
| |
| |
Cash Flows | |
| |
| |
Time Value | |
| |
| |
Sensitivity Analysis of Time Value | |
| |
| |
Applications | |
| |
| |
Spreadsheets | |
| |
| |
Compounding | |
| |
| |
Absolute Valuation Versus Relative Valuation | |
| |
| |
| |
Measuring Return | |
| |
| |
Utility | |
| |
| |
Measuring Return: Profit versus Rates | |
| |
| |
Rates of Return--Before and After Taxes | |
| |
| |
Rates of Return and Compounding | |
| |
| |
Investment Horizons | |
| |
| |
| |
The Lognormal Distribution, Return Relatives, and Holding Period Yields | |
| |
| |
| |
Risk: Portfolio Considerations, Investment Horizons, Leverage | |
| |
| |
Overview | |
| |
| |
Volatility: The Source of Price Risk | |
| |
| |
Expressing Price Risk in Percent Form | |
| |
| |
The Mathematics of Portfolio Analysis | |
| |
| |
Risk Aversion and Portfolio Analysis | |
| |
| |
Role of the Investment Horizon (the Time Dimension) | |
| |
| |
An Intuitive Demonstration of the Importance of the Investment Horizon | |
| |
| |
Drawdown Criterion | |
| |
| |
The Optimal Portfolio in the Absence of a Riskless Asset | |
| |
| |
The Riskless Asset | |
| |
| |
Long and Short Positions and the Role of Leverage | |
| |
| |
| |
Measuring Risk: Advanced Topics | |
| |
| |
Measuring Exposure to Price Risk | |
| |
| |
Managing Risk | |
| |
| |
Insurance | |
| |
| |
Asset/Liability Management | |
| |
| |
Hedging | |
| |
| |
| |
Understanding Interest Rates and Exchange Rates | |
| |
| |
Debt Instruments: The Basics | |
| |
| |
The Coupon | |
| |
| |
Valuation of the Debt Instruments | |
| |
| |
The Yield Curve | |
| |
| |
Investment Risks in the Debt Markets | |
| |
| |
Exchange Rates: The Basics | |
| |
| |
Comparative Yield Curves | |
| |
| |
| |
Speculation, Arbitrage and Market Efficiency | |
| |
| |
The Market Mechanism at Work | |
| |
| |
Speculation | |
| |
| |
Arbitrage | |
| |
| |
Efficient Markets: Friend or Foe | |
| |
| |
| |
The Corporate Treasurer's Perspective: Reading Between the Lines | |
| |
| |
Why Risk Management? | |
| |
| |
Identifying Strategic Exposures | |
| |
| |
A Little Financial Engineering Can Go a Long Way | |
| |
| |
Analyzing the Balance Sheet | |
| |
| |
Modeling a Firm's Exposures | |
| |
| |
| |
The Physical Tools of the Financial Engineer | |
| |
| |
| |
Product Development | |
| |
| |
Products Defined | |
| |
| |
A Model for New Product Development | |
| |
| |
Instrument Preview | |
| |
| |
| |
Futures and Forwards | |
| |
| |
Futures | |
| |
| |
Forwards | |
| |
| |
Forward Rate Agreements (FRAs) | |
| |
| |
FRAs and Swaps | |
| |
| |
Summary | |
| |
| |
| |
Euro-rate Differential Futures and Forward Exchange Agreements | |
| |
| |
| |
Swaps | |
| |
| |
History | |
| |
| |
A Note on Rate Conventions | |
| |
| |
The Structure of a Swap | |
| |
| |
Interest Rate Swaps | |
| |
| |
Currency Swaps | |
| |
| |
Commodity Swap | |
| |
| |
Variants | |
| |
| |
Swap Dealer's Role | |
| |
| |
| |
Single Period Options: Calls and Puts | |
| |
| |
Calls and Puts: The Basics | |
| |
| |
Payoff Profiles | |
| |
| |
Hedging with Options | |
| |
| |
Cash Settled Options | |
| |
| |
| |
Multiperiod Options: Caps, Floors, Collars, Captions, Swaptions, and Compound Options | |
| |
| |
Interest Rate Caps (Caps) | |
| |
| |
Interest Rate Floors (Floors) | |
| |
| |
Interest Rate Collars (Collars) | |
| |
| |
Miscellaneous Interest Rate Options | |
| |
| |
Monetizing Embedded Options | |
| |
| |
Compound Options | |
| |
| |
| |
Fixed Income Securities | |
| |
| |
Primary Versus Secondary Markets | |
| |
| |
The Cash Market for U.S. Treasury Debt | |
| |
| |
The Cash Market for Corporate Debt and Preferred Stock | |
| |
| |
The Cash Market for Mortgage Debt | |
| |
| |
The International Debt Markets | |
| |
| |
| |
Conversion of Bank Discount Yields to Bond Equivalent Yields | |
| |
| |
| |
The Restatement of Bond Equivalent Yields | |
| |
| |
| |
Recent Debt Market Innovations | |
| |
| |
Zero Coupon Securities | |
| |
| |
Multiclass Mortgage-Backed and Asset-Backed Securities | |
| |
| |
Defeasance | |
| |
| |
The Repo/Reverse Market | |
| |
| |
Junk Bonds | |
| |
| |
Shelf Registration | |
| |
| |
Floating Rate Preferred Stock and Reverse Floating Rate Debt | |
| |
| |
| |
Taxation of Zero Coupon Bonds | |
| |
| |
| |
Equity and Equity-Related Instruments | |
| |
| |
Forms of Equity in the United States | |
| |
| |
Equity-Related Securities | |
| |
| |
Equity Distribution | |
| |
| |
The Role of Equity in the Corporate Capital Structure | |
| |
| |
| |
Hybrid Securities | |
| |
| |
Types of Hybrid Securities | |
| |
| |
Investor Motivation | |
| |
| |
Issuer Motivation | |
| |
| |
| |
Financial Engineering Processes and Strategies | |
| |
| |
| |
Asset/Liability Management | |
| |
| |
The Evolution of Asset/Liability Management | |
| |
| |
The Foundation Concepts | |
| |
| |
The Changing Face of Liquidity Management | |
| |
| |
Margin Management (the role of the Gap) | |
| |
| |
The Investment Banker in Asset/Liability Management | |
| |
| |
| |
Hedging and Related Risk Management Techniques | |
| |
| |
Hedge Ratios and Their Uses | |
| |
| |
Recent Improvements in Hedging Theory | |
| |
| |
The Cost of Hedging | |
| |
| |
The Building Block Approach to Hedging | |
| |
| |
Miscellaneous Risk Management Issues and Instruments | |
| |
| |
| |
Corporate Restructuring and the LBO | |
| |
| |
Corporate Restructuring | |
| |
| |
Going Private: The Leveraged Buyout | |
| |
| |
A Typical Leveraged Buyout | |
| |
| |
The Investment Bank in an LBO: The Financial Engineer at Work | |
| |
| |
| |
Arbitrage and Synthetic Instruments | |
| |
| |
Arbitrage: From the Ancient to the Modern | |
| |
| |
Synthetic Securities | |
| |
| |
Synthesizing Derivatives | |
| |
| |
The Cash-and-Carry Synthetic | |
| |
| |
Cash-and-Carry in Arbitrage: Enhancing Portfolio Return | |
| |
| |
Creating Synthetic Long Bonds | |
| |
| |
Using Swaps to Synthesize Positions | |
| |
| |
Qualitative Differences Between Synthetic and Real Securities | |
| |
| |
| |
All-in Cost | |
| |
| |
| |
Tax-Driven Deals | |
| |
| |
Preventing a Hostile Takeover | |
| |
| |
Recapitalization of the Firm | |
| |
| |
Nonprofits: Tax on Unrelated Business Income | |
| |
| |
Meeting the Need for Short-Term Financing | |
| |
| |
Bond Swaps | |
| |
| |
Self-Liquidating Preferred Stock | |
| |
| |
Where Is a White Knight When You Need One? | |
| |
| |
Renegotiating Debt | |
| |
| |
Taxes and Costs on Real Estate Transfers | |
| |
| |
Real Property Taxes | |
| |
| |
| |
Miscellaneous Equity-Based Strategies | |
| |
| |
Dividend Capture Strategies | |
| |
| |
Whole-Market Investing | |
| |
| |
Asset Allocation | |
| |
| |
Portfolio Insurance | |
| |
| |
Program Trading | |
| |
| |
Unbundling Stocks | |
| |
| |
| |
The Calculation of Stock Indexes | |
| |
| |
| |
Future Directions in Financial Engineering | |
| |
| |
| |
Future Trends: Globalization and Technology | |
| |
| |
The Meaning of Globalization | |
| |
| |
A Recap of the Recent Developments Toward Financial Globalization | |
| |
| |
Development of New Markets and Market Linkages | |
| |
| |
Recent Advances in Settlement and Clearing | |
| |
| |
Globalization, Financial Engineering, and Monetary Policy | |
| |
| |
Spreadsheeting and Modeling: The Role of the Microcomputer | |
| |
| |
Toward a New World | |
| |
| |
| |
Articles | |
| |
| |
| |
Legal Protections for Innovative Financial Products and Services | |
| |
| |
Using a Copyright to Protect a Financial Product | |
| |
| |
Using a Patent to Protect a Financial Product | |
| |
| |
Using Unfair Competition Law to Protect a Security | |
| |
| |
How to Obtain Protection | |
| |
| |
Enforcement | |
| |
| |
Advantages and Disadvantages | |
| |
| |
Using a Trademark or Service Mark to Protect a Security | |
| |
| |
Index | |