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Financial Engineering Principles

318 Pages · 2005 · 3.2 MB · English

  • Financial Engineering Principles

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    Financial Engineering


    Principles


    A Unified Theory for Financial


    Product Analysis and Valuation


    Perry H. Beaumont, PhD


    John Wiley & Sons, Inc.


    TLFeBOOK 00_200306_FM/Beaumont 8/15/03 12:39 PM Page iii


    TLFeBOOK 00_200306_FM/Beaumont 8/15/03 12:39 PM Page i


    Financial Engineering


    Principles


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    Founded in 1807, John Wiley & Sons is the oldest independent publishing


    company in the United States. With offices in North America, Europe,


    Australia, and Asia, Wiley is globally committed to developing


    andmarketing print and electronic products and services for our


    customers’ professional and personal knowledge and understanding.


    The Wiley Finance series contains books written specifically for finance


    and investment professionals as well as sophisticated individual investors


    and their financial advisors. Book topics range from portfolio management


    to e-commerce, risk management, financial engineering, valuation, and


    financial instrument analysis, as well as much more.


    For a list of available titles, please visit our Web site at


    www.WileyFinance.com.


    TLFeBOOK 00_200306_FM/Beaumont 8/15/03 12:39 PM Page iii


    1 Head iii


    Financial Engineering


    Principles


    A Unified Theory for Financial


    Product Analysis and Valuation


    Perry H. Beaumont, PhD


    John Wiley & Sons, Inc.


    TLFeBOOK 00_200306_FM/Beaumont 8/15/03 12:39 PM Page iv


    Copyright © 2004 by Perry H. Beaumont, Ph.D. All rights reserved.


    Published by John Wiley & Sons, Inc., Hoboken, New Jersey.


    Published simultaneously in Canada.


    No part of this publication may be reproduced, stored in a retrieval system, or transmitted in


    any form or by any means, electronic, mechanical, photocopying, recording, scanning, or oth-


    erwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act,


    without either the prior written permission of the Publisher, or authorization through payment


    of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive,


    Danvers, MA 01923, 978-750-8400, fax 978-750-4470, or on the web at www.copyright.com.


    Requests to the Publisher for permission should be addressed to the Permissions Department,


    John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-


    6008, e-mail: permcoordinator@wiley.com.


    Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best


    efforts in preparing this book, they make no representations or warranties with respect to the


    accuracy or completeness of the contents of this book and specifically disclaim any implied war-


    ranties of merchantability or fitness for a particular purpose. No warranty may be created or


    extended by sales representatives or written sales materials. The advice and strategies contained


    herein may not be suitable for your situation. You should consult with a professional where


    appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other


    commercial damages, including but not limited to special, incidental, consequential, or other


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    For general information on our other products and services, or technical support, please con-


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    Library of Congress Cataloging-in-Publication Data


    Beaumont, Perry H., 1961-


    Financial engineering principles: a unified theory for financial


    product analysis and valuation / Perry H. Beaumont.


    p. cm. — (Wiley finance series)


    Published simultaneously in Canada.


    ISBN 0-471-46358-2 (cloth)


    1. Financial engineering. I. Title. II. Series.


    HG176.7.B42 2003


    658.15’224—dc21 2003011338


    Printed in the United States of America.


    10 9 8 7 6 5 4 3 2 1


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    For my wife, Alexandra, with love and devotion


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    Equities Bonds


    Currencies


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    1 Head vii


    Contents


    FOREWORD IX


    PREFACE XI


    INTRODUCTION XVII


    PART ONE


    Products, Cash Flows, and Credits 1


    CHAPTER 1


    Products 3


    CHAPTER 2


    Cash Flows 15


    CHAPTER 3


    Credit 73


    PART TWO


    Financial Engineering, Risk Management, and Market Environment 111


    CHAPTER 4


    Financial Engineering 113


    CHAPTER 5


    Risk Management 171


    CHAPTER 6


    Market Environment 241


    INDEX 271


    vii


    TLFeBOOK


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