Financial engineering

B. Financial engineering B-1. Optimizing the capital structure B-2. Reducing corporate tax Optimizing capital structure and minimizing after-tax cost of capital of the portfolio company as a consequence of financial knowledge and experience... 

Finally, smoke-and-mirrors financial engineering, especially the use of debt to replace equity, does not create a lot of value in and of itself It turns out that the cost of capital is more or less independent of leverage, since the tax advantage of a high level of debt is almost entirely offset by the higher cost of that debt. How-... 

CAPE is a multidisciplinary branch of process engineering spreading very rapidly into new fields outside the processing industries. The emerging fields for CAPE applications are proteomics, financial engineering, and material sciences, to name a few. " ... 

Over the last decade, the challenges faced by asset managers have become significantly more complex. The array of investment choices has expanded tremendously in response to globalization and financial engineering. New products are now available such as collateralized debt, insurance-linked securities, and exotic structured products. At the same time, the need for investment planning has shifted more to individuals as companies and public entities relinquish responsibility for retirement programs. 

The obvious answer to heightened complexity and uncertainty lies in utilizing financial engineering techniques to manage asset portfolios. This chapter reviews the current state of the art from a practitioner s perspective. The prime focus is on mean-variance optimization techniques, which remain the principal application tool. The key message is that while the methods employed by today s specialists are not especially onerous mathematically or computationally, there are major issues in problem formulation and structure. It is in this arena that imagination and inventiveness take center stage. 

Lamm, R. M. (1999b), The Exotica Portfolio New Financial Instruments Make Bonds Obsolete, in Insurance and Weather Derivatives From Exotic Options to Exotic Underlyings, Helyette Geman, Ed., Financial Engineering, London, pp. 85-99. 

For a discussion, see Steven V. Mann and Pradipkumar Ramanlal, Duration and Convexity Measures When the Yield Curve Changes Shape, Journal of Financial Engineering (March 1998), pp. 35-58. 

Asset allocators/financial engineers who use futures contracts to manipulate the payoff profiles of bonds or other specially constructed portfolios. 

For a description of how this is achieved see Brian A. Eales, Financial Engineering (Basingstoke Palgrave, 2000). 

Sanjiv Das and Peter Tufano, Pricing Credit Sensitive Debt when Interest Rate, Credit Ratings and Credit Spreads Are Stochastic, Journal of Financial Engineering (1996). 

The flexibility of securitization is a key advantage for both issuers and investors. Financial-engineering techniques employed by investment banks today enable bonds to be created from any type of cash flow. The most typical such flows are those generated by high-volume loans such as residential mortgages and car and credit card loans, which are recorded as assets on bank or financial-house balance sheets. In a securitization, the loan assets are packaged together, and their interest payments are used to service the new bond issue. 

Galitz, L. 1995. Financial Engineering. London FT Pitman, chap. 3, 4, 6—8. 

No particular expertise was expected on the part of the client institutions either in financial engineering or in web-based services. However, the clients performance specifications were adhered too. Much as a new ear buyer can be satisfied with a particular automobile without knowledge of the complex electronic controls running the engine under the hood, so the clients of Prometeia were satisfied with the services provided by the web-based system and the Personal Financial Tools, without being aware of the advanced technology behind the user-interface. 

Heching, A. R. and A. J. King. 2008. Financial engineering. In Operation Research and Management Science Handbook, ed. A. R. Ravindran, Chapter 21. Boca Raton, FL CRC Press. 

M.H.C. Everdij and H.A.P. Blom (2003). Petri-nets and hybrid-state Markov processes in a power-hierarchy of dependability models. In Engel, Gueguen, Zaytoon (eds.), Analysis and design of hybrid systems, Elsevier, pp. 313-318 M.H.C. Everdij and H.A.P. Blom (2005), Piecewise deterministic Markov processes represented by dynamically coloured Petri nets. Stochastics Vol. 77, pp.1-29 P. Glasserman (2004), Monte Carlo methods in financial engineering. Springer. 

Nocedal, J., Wright, S.J. (2006) Numerical Optimization, 2nd edn. Springer Series in Operations Research and Financial Engineering. New York Springer. 

Benson, H.Y. and Vanderbei, R.J. (1998) Using LOQO to solve second-order cone programming problems. Technical Report SOR-98-09, Department of Operations Research and Financial Engineering, Princeton University, Princeton, NJ. 

Wah, B. 2009. Wiley Encyclopedia of Computer Science and Engineering. (5 vols.) Hoboken, NJ John Wiley Sons. Each of the 450 articles is written by experts and peer-reviewed. In addition to important topics of interest to computer scientists and engineers, there are also sections on standards, electronic commerce, financial engineering, and computer education. References and Web site of related interest accompany every article. 

Marshall, J., and V. Bansal. 1992. Financial Engineering. New York New York Institute of Finance. 

Insurance models in actuarial sciences and financial engineering have a long history of development and wide applications in assessing underwriting risks. Popular approaches for characterizing catastrophic risk processes include a compound Poisson process (e.g., Rolski... 

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