Financial Engineering: The Evolution of a Profession / Edition 1

by Tanya S. Beder, Cara M. Marshall

Overview

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, 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.

Product Details

ISBN-13:	9780470455814
Publisher:	Wiley
Publication date:	06/07/2011
Series:	Robert W. Kolb Series , #2
Pages:	616
Product dimensions:	7.40(w) x 10.10(h) x 2.00(d)

About the Author

TANYA S. BEDER is Chairman of SBCC in New York. She has clients around the world and is a featured speaker in the areas of risk management, structured securities, strategy, governance and financial forensics. Beder is on the Board of Directors of American Century Mutual Funds, the National Board of Mathematics and Their Applications and is an Appointed Fellow of the International Center for Finance at Yale University. Previously, she was CEO of Tribeca, a $3 billion multi-strategy hedge fund and Managing Director of Caxton, a $10 billion investment firm. Beder is widely published, including in The Journal of Portfolio Management, Financial Analysts Journal, and Harvard Business Review. Her degrees are from Harvard and Yale Universities.

CARA M. MARSHALL is a professor of finance and risk management at Queens College of the City University of New York and consults to the financial services community as a training consultant. She has been published in the Global Finance Journal and contributed to Financial Derivatives: Pricing and Risk Management (also published by Wiley).

Read an Excerpt

Click to read or download

Table of Contents

Introduction xi
Tanya Beder and Cara M. Marshall

PART I Overview 1

1 The History of Financial Engineering from Inception to Today 3
Tanya Beder

2 Careers in Financial Engineering 29
Spencer Jones

3 A Profile of Programs and Curricula with a Financial Engineering Component 51
John Cornish

PART II Financial Engineering and the Evolution of Major Markets 71

4 The Fixed Income Market 73
Peruvemba Satish

5 The U.S. Mortgage Market 111
Bruce McNevin

6 The Equity Market 131
Gary L. Gastineau and John F. Marshall

7 The Foreign Exchange Market 159
Laurent L. Jacque

8 The Commodity Market 191
Helen Lu and Cara M. Marshall

9 The Credit Market 215
Frank Iacono

PART III Key Applications of Financial Engineering 241

10 Securitized Products 243
Konstantin Braun

11 Structured Products 259
Timothy A. Day

12 Thoughts on Retooling Risk Management 273
Tanya Beder and Spencer Jones

13 Financial Engineering and Macroeconomic Innovation 289
Cara Marshall and John O’Connell

14 Independent Valuation for Financially-Engineered Products 305
Cindy W. Ma and Andrew MacNamara

15 Quantitative Trading in Equities 323
Kun Gao

16 Systematic Trading in Foreign Exchange 337
Chris Attfield and Mel Mayne

PART IV Case Studies in Financial Engineering: The Good, the Bad, and the Ugly 367

17 Case Studies Introduction 369
Penny Cagan

18 Mortgage Case Studies: Countrywide and Northern Rock 373

Algorithmics Software LLC

19 Derivatives Case Studies: SocGen, Barings, and Allied Irish/Allfirst 385

Algorithmics Software LLC

20 Fixed Income Case Study, Swap Market: The Allstate Corporation 405

Algorithmics Software LLC

21 Lessons from Funds: LTCM, Florida, and Orange County 409

Algorithmics Software LLC

22 Credit Derivatives Case Studies: AIG and 421
Merrill Lynch

Algorithmics Software LLC

PART V Special Topics in Financial Engineering 431

23 Performance Fees 433
Mark P. Kritzman

24 Musings About Hedging 445
Ira Kawaller

25 Operational Risk 455
Monique Miller

26 Legal Risk 465
Jordana Krohley

27 Portable Alpha 487
Tanya Beder and Giovanni Beliossi

28 The No-Arbitrage Condition in Financial Engineering: Its Use and Misuse 497
Andrew Aziz

29 Influencing Financial Innovation: The Management of Systemic Risks and the Role of the Public Sector 521
Todd Groome, John Kiff, and Paul Mills

PART VI Appendices 547

A IT Tools for Financial Asset Management and Engineering 549

B About the Companion Website 569

About the Editors 575

Index 577