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Synthetic and Structured Assets


Financial activities have been a part of the global economic framework for centuries. Lending, borrowing, speculating, investing, and hedging, for instance, have been employed for years by a broad range of institutions in order to achieve specific financial goals. With progress emerging over the past few years in derivatives valuation methods, technology, legal structuring, market liquidity, cross border capital flows, and financial creativity, a new class of increasingly customized financial assets has developed. It is now common for institutions, which once relied on basic capital-raising and investment instruments, to turn to these sophisticated assets to achieve their goals. Synthetic and Structured Assets is a new book that focuses on customized financial instruments created specifically to meet the risk and investment needs of market participants.  

The text explores the mechanics and applications of synthetic and structured assets – or assets that are created, decomposed or restructured in order to alter, replicate, or enhance cash flows to meet end-user requirements. Product coverage includes:

  • Callable, Puttable and Stripped Securities
  • Mortgage and Asset-Backed Securities
  • Structured Notes and Loans
  • Collateralized Debt Obligations
  • Insurance-Linked Securities and Contingent Capital
  • Convertible Bonds and Equity Hybrids
  • Investment Funds
  • Derivative Replication, Repackaging, and Structuring

The text also provides in-depth coverage of the financial building blocks used to create synthetic and structured assets, as well as the legal, risk, and financial control parameters that form a key part of the evaluation and management process.

Erik Banks is an independent risk consultant and financial author who has been active in the investment banking sector for 20 years. Erik has held senior risk management positions at Merrill Lynch, XL Capital, and Citibank in New York, Tokyo, London, and Hong Kong, and has written 20 books on derivatives, risk, emerging markets, and merchant banking, including the JohnWiley titles The Simple Rules of Risk, Exchange-Traded Derivatives, Alternative Risk Transfer, and Catastrophic Risk. He lives in Maine with his wife, Milena, and their horses and dogs.

About the author.

1. Introduction to Synthetic and Structured Assets.

1.1 Development of structured and synthetic assets.

1.2 Drivers of market activity.

1.3 New product design.

1.4 Overview of the text.

2. Financial Building Blocks.

2.1 Introduction.

2.2 Concepts.

2.3 Derivative instruments.

2.4 Host securities/liabilities.

2.5 Issuing/repackaging vehicles.

2.6 Financial engineering and product design.

3. Callable, Puttable, and Stripped Securities.

3.1 Introduction.

3.2 Development and market drivers.

3.3 Product mechanics and applications.

4. Mortgage- and Asset-backed Securities.

4.1 Introduction.

4.2 Development and market drivers.

4.3 Product mechanics and applications.

5. Structured Notes and Loans.

5.1 Introduction.

5.2 Development and market drivers.

5.3 Product mechanics and applications.

6. Collateralized Debt Obligations.

6.1 Introduction.

6.2 Development and market drivers.

6.3 Product mechanics and applications.

7. Insurance-linked Securities and Contingent Capital.

7.1 Introduction.

7.2 Development and market drivers.

7.3 Product mechanics and applications.

8. Convertible Bonds and Equity Hybrids.

8.1 Introduction.

8.2 Development and market drivers.

8.3 Product mechanics and applications.

9. Investment Funds.

9.1 Introduction.

9.2 Development and market drivers.

9.3 Product mechanics and applications.

10. Derivative Replication, Repackaging, and Structuring.

10.1 Introduction.

10.2 Development and market drivers.

10.3 Product mechanics and applications.

11. Risk, Legal, and Regulatory Issues.

11.1 Introduction.

11.2 Risk and financial controls.

11.3 Legal controls.

11.4 Regulatory and accounting issues.

Selected References.