9780471986188

Financial Innovation

by ;
  • ISBN13:

    9780471986188

  • ISBN10:

    0471986186

  • Edition: 1st
  • Format: Hardcover
  • Copyright: 1999-06-02
  • Publisher: WILEY
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Summary

The past twenty years have seen a massive increase in the development of new financial instruments, many of which have been off-balance-sheet activities. These instruments have become increasingly complex, placing a higher demand on both the purchasers and the creators of such instruments. This book discusses in detail, through a blend of theory and empirical research, the modeling of new financial instruments and examines the instruments that have been created over the past twenty years.

Author Biography

<b>Philip Molyneux</b> is Professor of Banking and Finance in the School of Accounting, Banking and Economics at the University of Wales, Banner and Professor of Financial Services and Financial Conglomerates at the Erasmus University, Rotterdam, The Netherlands. His main research interests relate to the structure, efficiency and performance of banking markets and financial systems, areas in which he has written widely. He has acted as a consultant to many international banks and organisations, including the New York Federal Reserve Bank, World Bank and European Commission. He is currently a member of the UKs National Institutes Advisory Panel on the European Financial Markets Programme.<br> <b> Nidal Shamroukh</b> is a financial engineer at Algorithmics UK, an enterprise-wide risk management software provider. He is a graduate of Bilkent University, Turkey and obtained his MA and PhD degrees from University of Wales, Bangor. Currently he advises major banks on modelling their portfolios and managing their risks.

Table of Contents

Acknowledgements x
Publisher's Note xi
Series Preface xii
Preface xiii
Technical and Financial Innovation: An Introduction
1(12)
Technical Innovation and the Industrial Economics Literature
3(3)
Financial Innovation
6(2)
Structure of the Book
8(5)
Financial Innovations---Securitisation and Off-Balance Sheet Activities
13(38)
Introduction
15(1)
Financial Innovation Over the Last 20 Years
16(3)
Securitisation and OBSAs
19(17)
Overview
19(3)
Eurodollar Market
22(1)
Eurobond Market
22(2)
Floating-Rate Notes and Eurodollar Floating Rate Notes
24(1)
Euronotes: NIFs, ECP, and EMTNs
25(3)
Euronotes and Syndicated Loans
28(1)
Bank Asset Securitisation
29(2)
Loan Sales
31(1)
Other Off-Balance Sheet Activities (OBSAs)
32(4)
Factors Affecting Supply of Financial Innovations: Globalisation, Technology, and Competition
36(3)
Why Banks Issue OBS Assets
39(3)
Demand for Financial Innovation
42(5)
Demand-Driven Theory of Financial Innovations
43(1)
Price-Risk Transferring Innovations
43(2)
Credit-Risk Transferring Innovations
45(1)
Liquidity-Enhancing Innovations
45(1)
Credit-Generating Innovations
45(2)
Equity-Generating Innovations
47(1)
Demand and Supply of Financial Innovations: Deficit versus Surplus Units
47(1)
Conclusion
47(4)
Theoretical Approaches Towards Financial Innovation
51(30)
Introduction
53(1)
Constraint-Induced Hypothesis
54(2)
The Regulatory Dialectic
56(4)
Financial Innovation as a Bundling and Unbundling Process in Incomplete Markets
60(4)
Security Design and Incomplete Market Models of Financial Innovation
64(9)
Risk Sharing
64(2)
Securities and Risk Sharing
66(1)
Incomplete Markets
67(1)
Optimal Security Design
68(1)
Equilibrium and the Incentives to Innovate
69(1)
Extensions to the Basic Framework
69(1)
Innovation by Financial Institutions
70(3)
General Equilibrium Models of Financial Innovation
73(3)
Security Design in a Linear Framework
76(1)
Conclusion
77(4)
Models of Innovation: The Industrial Economics Literature
81(56)
Introduction
83(2)
Basic Definitions
85(3)
Product versus Process Innovation
85(1)
Types of Innovation
85(1)
Uncertainty and the Assumption of Perfect Information
86(1)
Demand-Pull versus Technology-Push Hypotheses
87(1)
Schumpeterian Hypotheses
88(3)
Monopoly and Innovation
90(1)
Firm Size and Innovation
90(1)
The Incentive to Innovate
91(5)
The Arrow Model
91(2)
The Arrow-Demsetz Model
93(2)
Schumpeter versus Arrow
95(1)
Pace of Development and Timing of Innovation
96(11)
Scherer's Model
97(7)
Barzel's Model
104(3)
Decision-Theoretic Models of Innovation
107(6)
Game-Theoretic Models of Innovation
113(15)
Winner-Take-All Games of Innovation
113(6)
The Effects of Imitation on the Innovative Activity
119(3)
Asymmetric Models and Pre-emptive Innovations
122(6)
Summary of the Literature
128(5)
Conclusion
133(4)
Models of Innovation Adoption and Diffusion
137(54)
Introduction
139(1)
Rational-Efficiency Models of Innovation Adoption
140(6)
Heterogeneous Population of Potential Adopters
141(3)
Strategic Interactions and Innovation Adoption
144(2)
Bandwagon Theories of Innovation Adoption
146(8)
Positive Network Externalities
146(5)
Competitive and Institutional Bandwagon Pressures
151(3)
Empirical Models of Diffusion
154(33)
Basic Models
155(3)
The Mansfield (1961) Model
158(6)
Estimation of the Internal-Influence Model
164(1)
The Bass (1969) Model
165(4)
Estimation of the Mixed-Influence Model
169(1)
External-Influence Models
170(3)
Assumptions Underlying the Fundamental Model
173(1)
Flexible Models
174(2)
Extensions and Refinements
176(1)
Diffusions Models with Time-varying Parameters
176(7)
Multi-adoption Diffusion Models
183(3)
Evaluation of Diffusion Models
186(1)
Conclusion
187(4)
Financial Innovation: An Industrial Economics Perspective
191(28)
Introduction
193(1)
Comparison of the Industrial Economics and the Finance Literature
193(2)
Models of Innovation With Application to the Financial Industry
195(6)
Anderson and Harris (1986)
195(5)
Kapadia and Puri's (1995) Model
200(1)
Empirical Aspects of the Innovation Process in Financial Markets
201(1)
Empirical Diffusion Patterns of OBSAs
202(5)
A Framework for Modelling Innovation Adoption in Financial Markets
207(5)
Rational-Efficiency as an Explanation of Innovation Diffusion
210(1)
Bandwagon-Pressure Theories of Innovation Diffusion
211(1)
Categories of Adopters
212(4)
Internal versus External Adopters
212(3)
Repeat Adopters
215(1)
Conclusion
216(3)
Modelling the Diffusion of Financial Innovations: Methodological Approaches
219(22)
Introduction
221(1)
Innovation Adoption and Adopters in Financial Markets
221(1)
Single-Adoption Diffusion Models
222(2)
The Logistic-Curve Model
222(1)
The Non-Uniform Influence Model (NUI)
223(1)
Repeat-Adoption Models
224(6)
The Non-Uniform Influence Repeat Adoption Model (NUIR)
224(2)
The NUIR 1 Model
226(2)
The NUIR 2 Model
228(2)
Data
230(1)
The Market for Note Issuance Facilities (NIFs)
231(4)
The Development of the Market
231(1)
Underwriting Banks in the NIFs Market
232(1)
Arrangers of NIFs
232(3)
The Junk Bond Market
235(4)
Development of the Market
235(1)
Participating Banks
236(2)
Investors in the Junk Bonds Market
238(1)
Issuers of Junk Bonds
239(1)
Conclusion
239(2)
Modelling the Diffusion of Financial Innovations: Some Empirical Evidence
241(24)
Introduction
243(1)
Single-Adoption Models
244(9)
The Logistic Curve
244(1)
NIFs
244(1)
Junk Bonds
244(2)
The NUI Model
246(1)
Actual versus Expected Number of Adopters
246(2)
Time-Varying Internal Influence
248(2)
Internal versus External Adopters
250(3)
Repeat-Adoption Models: The NUIR, the NUIR 1 and the NUIR 2 Models
253(8)
The Mahajan (1983) NUIR Model
253(1)
The NUIR 1 Model
254(3)
The NUIR 2 Model
257(2)
First-Time versus Repeat Adopters
259(2)
Conclusion
261(4)
Conclusion and Summary
265(12)
Conclusion and Summary
267(4)
Limitations of Modelling the Financial Innovation Process
271(3)
Future Research
274(3)
Bibliography 277(14)
Index 291

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