Financial engineering. Methods and cases
Financial engineering. Methods and cases
Contributor(s): Paweł Kliber (Editor)
Subject(s): Economy, Business Economy / Management, Financial Markets
Published by: Wydawnictwo Uniwersytetu Ekonomicznego w Poznaniu
Keywords: corporate finance;financial engineering;investment;quantitative finance;financial risk measuring and management;financial instruments pricing;
Summary/Abstract: This textbook contains materials for several courses which are taught in the Master’s Programme in Financial Engineering that is run at the Poznań University of Economics and Business. The book consists of seven chapters that cover the main areas of quantitative finance: investment, financial instruments pricing, financial risk measuring and management as well as corporate finance. The main part of the book is devoted to the mathematical models used in the field of finance. There are four chapters devoted to the pricing of financial instruments: from pricing equities using Capital Asset Pricing Model, through derivative instruments on equites, to more complicated derivatives on interest rates. The last topic is illustrated with some genuine examples from the markets in the post-crisis period. One chapter describes basic models and concepts used in measuring financial risk. Two other chapters are about investment. One describes the way in which companies finance their activities. The second one describes investment strategies of hedge funds. All chapters contain exercises and examples from the real markets.In order to understand the topics from the textbook, some prerequisites are required. It is assumed that a potential reader knows the basics of probability theory, linear algebra and calculus. The knowledge of econometrics and statistical methods used in economics will also be useful in better comprehension of the book. All these issues are usually taught in Bachelor’s programmes in Economics or Finance.
- E-ISBN-13: 978-83-66199-04-0
- Page Count: 235
- Publication Year: 2019
- Language: English
Multifactor models: Portfolio theory
Multifactor models: Portfolio theory
(Multifactor models: Portfolio theory)
- Author(s):Barbara Będowska-Sójka
- Language:English
- Subject(s):Economy, Business Economy / Management, Financial Markets
- Page Range:9-34
- No. of Pages:26
- Keywords:portfolio analysis;Capital Asset Pricing Model (CAPM);market model;characteristic line-market model;security characteristic line;investment;multifactor model;
- Summary/Abstract:The chapter covers methods used in the portfolio analysis. Starting from the classic Sharpe's Capital Asset Pricing Model, it moves to more refined and modern multifactor models of investment returns. The chapter contains real-life examples and cases from Polish and worldwide markets.
Financial risk measurement
Financial risk measurement
(Financial risk measurement)
- Author(s):Krzysztof Echaust
- Language:English
- Subject(s):Economy, Business Economy / Management, Financial Markets
- Page Range:35-62
- No. of Pages:28
- Keywords:risk measurement;finance;risk;financial institutions;market risk;credit risk;risk management;financial risk;
- Summary/Abstract:The chapter describes basic methods of risk measurement in finance. It provides the definition of a risk and describes sources and types of risks one can encounter in financial institutions. It also provides the main measures of risk-both market risk as well as credit risk.
Introduction to derivative instruments pricing
Introduction to derivative instruments pricing
(Introduction to derivative instruments pricing)
- Author(s):Paweł Kliber
- Language:English
- Subject(s):Economy, Business Economy / Management, Financial Markets
- Page Range:63-100
- No. of Pages:38
- Keywords:martingale pricing;discrete models of financial markets;arbitrage-free model;complete market;contingent claim;derivative instruments;First Fundamental Theorem;martingale measure;
- Summary/Abstract:The paper provides an introduction to methods used in the derivative instruments pricing. We present here the techniques of building formal models of financial markets. We also describe the basic notions connected with mathematical modelling in finance (such as arbitrage, risk-neutral measures and martingale pricing). We concentrate here on discrete time models (i.e. models with finite time horizon and sample space).
Corporate financing-designing and offering securities
Corporate financing-designing and offering securities
(Corporate financing-designing and offering securities)
- Author(s):Tomasz Jewartowski
- Language:English
- Subject(s):Economy, Business Economy / Management, Financial Markets
- Page Range:101-128
- No. of Pages:28
- Keywords:corporate finance;securities;offering securities;designing securities;
- Summary/Abstract:The chapter is devoted to corporate finance. It describes the main aims of issuing securities offered by companies to finance their economic activities. The main aims of issuing securities and methods of offering them are presented. The chapter contains also a description of practices from the Polish market and contains examples concerning this market.
Modeling a term structure of interest rates
Modeling a term structure of interest rates
(Modeling a term structure of interest rates)
- Author(s):Paweł Kliber
- Language:English
- Subject(s):Economy, Business Economy / Management, Financial Markets
- Page Range:129-156
- No. of Pages:28
- Keywords:term structure of interest rates;bootstrapping interest rates;discount curve;splines;spot rates;forward rates;IRS;swaps;Nelson-Siegel model;Svensson model;
- Summary/Abstract:The paper deals with modelling the term structure of interest rates. Starting from the basic concepts connected with time value of money, it introduces and describes various types of interest rates. The methods of estimating terms structure of interest rates from bonds’ prices are presented here. The chapter ends with the description of the main models of term structure of interest rates that are used by central banks worldwide.
Yield curves construction methods
Yield curves construction methods
(Yield curves construction methods)
- Author(s):Paweł Olsza
- Language:English
- Subject(s):Economy, Business Economy / Management, Financial Markets
- Page Range:157-200
- No. of Pages:44
- Keywords:term structure of interest rates;swap;swap instruments;yield curve;interest rate swap;forward rate agreement;tenor basis swap;overnight indexed swap;cross currency interest rate swap;bootstrapping;
- Summary/Abstract:The chapter provides broader view on the methods presented in the previous chapter and is related to the market practice. It contains information about the usage of term structure of interest rates in pricing swap instruments. The main swap instruments in the Polish financial markets are presented here. In the chapter it is shown that after the crisis of 2007-2009 more advanced methods, assuming the existence of many yield curves, are needed in practice.
Hedge fund strategies
Hedge fund strategies
(Hedge fund strategies)
- Author(s):Katarzyna Perez
- Language:English
- Subject(s):Economy, Business Economy / Management, Financial Markets
- Page Range:201-235
- No. of Pages:35
- Keywords:absolute return;bottom-up;double alpha strategy;front running;gate provision;gross market exposure;hedge ratio;high-water mark;hold-over provision;hurdle rate;incentive fee;lock-up period;
- Summary/Abstract:Hedge funds are known for being one of the most efficient but risky financial innovations in the world. They belong to the group of alternative investments. Contrary to traditional investment funds they are offered only to selected investors who are characterized by high level of assets and sufficient degree of sophistication allowing them to invest capital in investments not protected by governmental institutions of financial market supervision. This chapter concentrates on characteristics of hedge fund attributes and strategies, especially those that use derivatives on a daily basis. It clarifies why a “hedge fund” is in fact a misname and which hedge fund attributes are the best to define it. It also presents and describes the types of hedge funds strategies which represent directional or non-directional approach to active management. The terms like absolute return, onshore or offshore funds, bottom-up or top down, net long or net short and many others are explained and illustrated with figures and examples. The chapter also presents a few examples of how derivatives are used in those strategies. The know-how on that subject is strictly confidential therefore the examples are hypothetical and not very detailed. However, they bring this issue closer and introduce the reader to how hedge fund managers earn absolute returns.
