Financial engineering and arbitrage in the financial markets - Robert Dubil

A whole is worth the sum of its parts. Even the most complexstructured bond, credit arbitrage strategy or hedge trade can bebroken down into its component parts, and if we understand theelemental components, we can then value the whole as the sum of itsparts. We can quantify the risk that is hedged and the risk that isleft as the residual exposure. If we learn to view all financialtrades and securities as engineered packages of building blocks,then we can analyze in which structures some parts may be cheap andsome may be rich. It is this relative value arbitrage principlethat drives all modern trading and investment.

This book is an easy-to-understand guide to the complex world oftoday's financial markets teaching you what money and capitalmarkets are about through a sequence of arbitrage-based numericalillustrations and exercises enriched with institutional detail.Filled with insights and real life examples from the trading floor,it is essential reading for anyone starting out in trading.

Using a unique structural approach to teaching the mechanics offinancial markets, the book dissects markets into their commonbuilding blocks: spot (cash), forward/futures, and contingent(options) transactions. After explaining how each of these isvalued and settled, it exploits the structural uniformity acrossall markets to introduce the difficult subjects of financiallyengineered products and complex derivatives.

The book avoids stochastic calculus in favour of numeric cashflow calculations, present value tables, and diagrams, explainingoptions, swaps and credit derivatives without any use ofdifferential equations.