Financial Engineering

FINANCIAL ENGINEERING Financial engineering is poised for a great shift in the years ahead. Everyone from investors and borrowers to regulators and legislators will need to determine what works, what doesn't, and where to go from here. Financial Engineering part of the Robert W. Kolb Series in Finance has been designed to help you do just this. Comprised of contributed chapters by distinguished experts from industry and academia, this reliable resource will help you focus on established activities in the field, developing trends and changes, as well as areas of opportunity. Divided into five comprehensive parts, Financial Engineering begins with an informative overview of the discipline, chronicling its complete history and profiling potential career paths. From here, Part II quickly moves on to discuss the evolution of financial engineering in major markets fixed income, foreign exchange, equities, commodities and credit and offers important commentary on what has worked and what will change. Part III then examines a number of recent innovative applications of financial engineering that have made news over the past decade such as the advent of securitized and structured products and highly quantitative trading strategies for both equities and fixed income. Thoughts on how risk management might be retooled to reflect what has been learned as a result of the recent financial crisis are also included. Part IV of the book is devoted entirely to case studies that present valuable lessons for active practitioners and academics. Several of the cases explore the risk that has instigated losses across multiple markets, including the global credit crisis. You'll gain in-depth insights from cases such as Countrywide, Soci t G n rale, Barings, Long-Term Capital Management, the Florida Local Government Investment Pool, AIG, Merrill Lynch, and many more. The demand for specific and enterprise risk managers who can think outside the box will be substantial during this decade. Much of Part V presents new ways to be successful in an era that demands innovation on both sides of the balance sheet. Chapters that touch upon this essential topic include Musings About Hedging; Operational Risk; and The No-Arbitrage Condition in Financial Engineering: Its Use and Mis-Use. This book is complemented by a companion website that includes details from the editors' survey of financial engineering programs around the globe, along with a glossary of key terms from the book. This practical guide puts financial engineering in perspective, and will give you a better idea of how it can be effectively utilized in real- world situations.

FINANCIAL ENGINEERINGFinancial engineering is poised for a great shift in the years ahead. Everyone from investors and borrowers to regulators and legislators will need to determine what works, what doesn't, and where to go from here. Financial Engineering--part of the Robert W. Kolb Series in Finance--has been designed to help you do just this. Comprised of contributed chapters by distinguished experts from industry and academia, this reliable resource will help you focus on established activities in the field, developing trends and changes, as well as areas of opportunity.Divided into five comprehensive parts, Financial Engineering begins with an informative overview of the discipline, chronicling its complete history and profiling potential career paths. From here, Part II quickly moves on to discuss the evolution of financial engineering in major markets--fixed income, foreign exchange, equities, commodities and credit--and offers important commentary on what has worked and what will change. Part III then examines a number of recent innovative applications of financial engineering that have made news over the past decade--such as the advent of securitized and structured products and highly quantitative trading strategies for both equities and fixed income. Thoughts on how risk management might be retooled to reflect what has been learned as a result of the recent financial crisis are also included.Part IV of the book is devoted entirely to case studies that present valuable lessons for active practitioners and academics. Several of the cases explore the risk that has instigated losses across multiple markets, including the global credit crisis. You'll gain in-depth insights from cases such as Countrywide, Société Générale, Barings, Long-Term Capital Management, the Florida Local Government Investment Pool, AIG, Merrill Lynch, and many more.The demand for specific and enterprise risk managers who can think outside the box will be substantial during this decade. Much of Part V presents new ways to be successful in an era that demands innovation on both sides of the balance sheet. Chapters that touch upon this essential topic include Musings About Hedging; Operational Risk; and The No-Arbitrage Condition in Financial Engineering: Its Use and Mis-Use.This book is complemented by a companion website that includes details from the editors' survey of financial engineering programs around the globe, along with a glossary of key terms from the book.This practical guide puts financial engineering in perspective, and will give you a better idea of how it can be effectively utilized in real- world situations.

Introduction xiTanya Beder and Cara M. MarshallPART I Overview 11 The History of Financial Engineering from Inception to Today 3Tanya Beder2 Careers in Financial Engineering 29Spencer Jones3 A Profile of Programs and Curricula with a Financial Engineering Component 51John CornishPART II Financial Engineering and the Evolution of Major Markets 714 The Fixed Income Market 73Peruvemba Satish5 The U.S. Mortgage Market 111Bruce McNevin6 The Equity Market 131Gary L. Gastineau and John F. Marshall7 The Foreign Exchange Market 159Laurent L. Jacque8 The Commodity Market 191Helen Lu and Cara M. Marshall9 The Credit Market 215Frank IaconoPART III Key Applications of Financial Engineering 24110 Securitized Products 243Konstantin Braun11 Structured Products 259Timothy A. Day12 Thoughts on Retooling Risk Management 273Tanya Beder and Spencer Jones13 Financial Engineering and Macroeconomic Innovation 289Cara Marshall and John O'Connell14 Independent Valuation for Financially-Engineered Products 305Cindy W. Ma and Andrew MacNamara15 Quantitative Trading in Equities 323Kun Gao16 Systematic Trading in Foreign Exchange 337Chris Attfield and Mel MaynePART IV Case Studies in Financial Engineering: The Good, the Bad, and the Ugly 36717 Case Studies Introduction 369Penny Cagan18 Mortgage Case Studies: Countrywide and Northern Rock 373Algorithmics Software LLC19 Derivatives Case Studies: SocGen, Barings, and Allied Irish/Allfirst 385Algorithmics Software LLC20 Fixed Income Case Study, Swap Market: The Allstate Corporation 405Algorithmics Software LLC21 Lessons from Funds: LTCM, Florida, and Orange County 409Algorithmics Software LLC22 Credit Derivatives Case Studies: AIG and 421Merrill LynchAlgorithmics Software LLCPART V Special Topics in Financial Engineering 43123 Performance Fees 433Mark P. Kritzman24 Musings About Hedging 445Ira Kawaller25 Operational Risk 455Monique Miller26 Legal Risk 465Jordana Krohley27 Portable Alpha 487Tanya Beder and Giovanni Beliossi28 The No-Arbitrage Condition in Financial Engineering: Its Use and Misuse 497Andrew Aziz29 Influencing Financial Innovation: The Management of Systemic Risks and the Role of the Public Sector 521Todd Groome, John Kiff, and Paul MillsPART VI Appendices 547A IT Tools for Financial Asset Management and Engineering 549B About the Companion Website 569About the Editors 575Index 577