Key Financial Instruments : Understanding and Innovating in the World of Derivatives

by Edwardes, Warren

• ISBN13: 9780273633006
• ISBN10: 0273633007
• Format: Hardcover
• Copyright: 2000-01-01
• Publisher: Financial Times Prentice Hall

Summary

This text sets out to demystify derivatives and financial engineering, with the aim of enabling investors to select the right products for their own needs and deploy them successfully.

Author Biography

Warren Edwardes is Chief Executive of Delphi Risk Management, a London-based financial instrument innovation, communication and risk management consultancy.

Table of Contents

The Big Why	p. xv
Foreword	p. xvii
Preface	p. xix
Introduction	p. 1
Introduction to the world of financial instruments and derivatives	p. 3
'Derivatiphobia'	p. 3
Neither a borrower nor a lender be	p. 5
How to capture the big new IDEA	p. 13
Why creativity?	p. 13
The big IDEA - impossible	p. 15
The big IDEA - disasters	p. 16
The big IDEA - everywhere	p. 17
The big IDEA - archive	p. 18
The big IDEA - the IDEA kit	p. 20
No chance	p. 21
Postscript	p. 22
What drives innovation?	p. 25
Ease of entry	p. 25
Copyright	p. 26
Six pillars of financial innovation	p. 27
The key financial instruments	p. 33
Key risks	p. 35
Currency risk management	p. 35
Interest rate management	p. 38
Equity risk management	p. 39
Commodity and inflation risk management	p. 40
Key financial instruments	p. 43
Introduction	p. 43
The four keys	p. 44
Forwards, futures, options and swaps	p. 45
Creating hybrids using building blocks	p. 56
Conclusion	p. 57
Derivatives for the retail client	p. 59
Introduction	p. 59
Los chiringuitos financieros	p. 60
Derivatives for the retail customer	p. 61
Guaranteed equity investments	p. 63
Mortgages	p. 65
Studies in innovation: from creativity to closing	p. 69
The break forward	p. 71
Introduction and overview	p. 71
Definition of a break forward	p. 73
Background to its invention	p. 73
The gap in first-generation products	p. 76
Break forward versus first-generation products	p. 78
Break forward versus second-generation products	p. 85
Conclusion	p. 90
Perpetual swaps	p. 93
Overview	p. 93
Introduction	p. 94
Where?	p. 95
What?	p. 96
Why?	p. 101
When?	p. 104
Conclusion	p. 105
Risk management	p. 107
Hedge choice and performance measurement	p. 109
To hedge or not to hedge?	p. 109
Hedge choice	p. 113
Utility or benefit function	p. 116
Judgement after the fact	p. 117
Legal risk management (by lona Levine)	p. 119
The market	p. 119
Legal risk defined	p. 120
Legal risk management and the matrix approach	p. 121
Conclusion	p. 133
Taxation aspects of derivatives and risk management	p. 135
General principles	p. 135
Matched tax treatment?	p. 136
Where does tax profit/loss arise?	p. 138
Tax costs of a transaction	p. 138
Simulated assets	p. 141
Back to the future: current developments and trends	p. 145
Credit and insurance derivatives	p. 147
Credit derivatives	p. 147
Insurance derivatives	p. 156
Dangers and disasters; profits and principles	p. 161
Retail clients	p. 162
Corporate business	p. 163
My word is my bond	p. 163
Some cautionary tales	p. 165
Conclusion	p. 177
The financial future	p. 181
Likely developments	p. 181
Less technophilia - have faith in fools	p. 183
Appendices	p. 193
Financial risk types or '50 ways to lose your money'	p. 195
Financial risk management instruments	p. 207
Risk management terms	p. 237
Islamic financial products	p. 245
Bibliography	p. 271
Index	p. 275
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