Financial Engineering

Financial Engineering provides a wide-ranging and in-depth coverage of the instruments used in the construction of financial products. Beginning with a description of the fundamental instruments used in financial engineering and their valuation, the text proceeds to analyse how those instruments can be combined to create synthetic structures. Later chapters cover more advanced financial products discussing their composition, valuation and risk hedging considerations. Included with this book is a free diskette containing EXCEL spreadsheets that are used to explore the more advanced topics. These allow the reader to experiment with: pricing a variety of exotic options in binomial and Black & Scholes frameworks, value equity and other special swap structures, analysing option hedging positions incorporating bid-ask spreads and volatility smiles and frowns. The operation of the computer software is clearly described and integrated into the main body of the text. This work is a guide to the creative use of financial products (e.g derivatives, financial models, statistical inference) to maximise the value of a portfolio and reduce the risk associated with this kind of investment. For the more advanced topics there are a series of spreadsheets which allow the user to price a variety of exotic options, in binomial and Black & Scholes frameworks, value equity and other special swap structures, analyze option hedging positions, incorporating bid ask spreads and volatility smiles and frowns. Their operation is clearly described and integrated in the main body of the text Front Matter....Pages ii-x Introduction....Pages 1-30 The Building Blocks: Exchange-Based Contracts....Pages 31-77 Forward Rate Agreements and Interest Rate Swaps....Pages 78-103 Forward Exchange Rates and Currency Swaps....Pages 104-120 Equity Swaps....Pages 121-139 Regular and Exotic Options....Pages 140-177 Alternative Pricing Approaches....Pages 178-196 Fixed Income Securities....Pages 197-220 Convertible Bonds....Pages 221-244 Applications....Pages 245-284 Back Matter....Pages 285-292 In addressing these questions the answers will certainly raise other issues, first with regard to the types of structures that are to be created and then with regard to measuring the inputs required in order to be able to undertake such engineering. A guide to the creative use of financial products (e.g derivatives, financial models, statistical inference) to maximise the value of a profolio and reduce the risk associated with this kind of investment. Se analizan en profundidad los instrumentos utilizados en la construcción de productos financieros