Frontmatter Page iii Monday, March 8, 2004 10:06 AM
Contents
Preface xiv
Acknowledgments xvi
About the Authors xviii
Commonly Used Symbols xix
Abbreviations and Acronyms xxCHAPTER 1
From Art to Engineering in Finance 1
Investment Management Process 2
Step 1: Setting Investment Objectives 2
Step 2: Establishing an Investment Policy 2
Step 3: Selecting a Portfolio Strategy 6
Step 4: Selecting the Specific Assets 7
Step 5: Measuring and Evaluating Performance 9
Financial Engineering in Historical Perspective 10
The Role of Information Technology 11
Industry’s Evaluation of Modeling Tools 13
Integrating Qualitative and Quantitative Information 15
Principles for Engineering a Suite of Models 17
Summary 18
CHAPTER 2
Overview of Financial Markets, Financial Assets, and Market Participants 21
Financial Assets 21
Financial Markets 25
Classification of Financial Markets 25
Economic Functions of Financial Markets 26
Secondary Markets 27
Overview of Market Participants 34
Role of Financial Intermediaries 35
Institutional Investors 37
Insurance Companies 41
Pension Funds 41
Investment Companies 42
Depository Institutions 43
Endowments and Foundations 45
Common Stock 45
iii