Financial Engineering and Arbitrage in the Financial Markets

A whole is worth the sum of its parts. Even the most complex structured bond, credit arbitrage strategy or hedge trade can be broken down into its component parts, and if we understand the elemental components, we can then value the whole as the sum of its parts. We can quantify the risk that is hedged and the risk that is left as the residual exposure. If we learn to view all financial trades and securities as engineered packages of building blocks, then we can analyze in which structures some parts may be cheap and some may be rich. It is this relative value arbitrage principle that drives all modern trading and investment.

This book is an easy-to-understand guide to the complex world of today’s financial markets teaching you what money and capital markets are about through a sequence of arbitrage-based numerical illustrations and exercises enriched with institutional detail. Filled with insights and real life examples from the trading floor, it is essential reading for anyone starting out in trading.

Using a unique structural approach to teaching the mechanics of financial markets, the book dissects markets into their common building blocks: spot (cash), forward/futures, and contingent (options) transactions. After explaining how each of these is valued and settled, it exploits the structural uniformity across all markets to introduce the difficult subjects of financially engineered products and complex derivatives.

The book avoids stochastic calculus in favour of numeric cash flow calculations, present value tables, and diagrams, explaining options, swaps and credit derivatives without any use of differential equations.

Content:
Chapter 1 Purpose and Structure of Financial Markets (pages 1–19):
Chapter 2 Spot Markets (pages 21–55):
Chapter 3 Futures Markets (pages 57–93):
Chapter 4 Swap Markets (pages 95–117):
Chapter 5 Options on Prices and Hedge?Based Valuation (pages 119–154):
Chapter 6 Options on Non?Price Variables (pages 155–182):
Chapter 7 Default Risk and Credit Derivatives (pages 183–200):
Chapter 8 Structured Finance (pages 201–221):
Chapter 9 Mortgage?Backed Securities (pages 223–242):
Chapter 10 Collateralized Debt Obligations and Basket Credit Derivatives (pages 243–261):
Chapter 11 Individual Investors: A Survey of Modern Investment Theory (pages 263–286):
Chapter 13 Banks: Asset?Liability Management (pages 303–327):
Chapter 12 Hedge Funds: Alpha, Beta, and Strategy Indexes (pages 287–302):
Chapter 14 Private Equity, Pension, and Sovereign Funds (pages 329–338):

size: a5(14.5*20)cm

printing: black and white

format: paper back