Drive profit and manage risk with expert guidance on trade processing The Trade Lifecycle catalogues and details the various types of trades, including the inherent cashflows and risk exposures of each. Now in its second edition, this comprehensive guide includes major new coverage of traded products, credit valuation adjustment, regulation, and the role of information technology. By reading this, you ll dissect a trade into its component parts, track it from preconception to maturity, and learn how it affects each business function of a financial institution. You will become familiar with the full extent of legal, operational, liquidity, credit, and market risks to which it is exposed. Case studies of real projects cover topics like FX exotics, commodity counterparty risk, equity settlement, bond management, and global derivatives initiatives, while the companion website features additional video training on specific topics to help you build a strong background in this fundamental aspect of finance. Trade processing and settlement combined with control of risk has been thrust into the limelight with the recent near collapse of the global financial market. This book provides thorough, practical guidance toward processing the trade, and the risks and rewards it entails. Gain deep insight into emerging subject areas Understand each step of the trade process Examine the individual components of a trade Learn how each trade affects everything it touches Every person working in a bank is highly connected to the lifecycle of a trade. It is the glue by which all departments are bound, and the aggregated success or failure of each trade determines the entire organization?s survival. The Trade Lifecycle explains the fundamentals of trade processing and gives you the knowledge you need to further your success in the market. INDICE: Foreword from the First Edition xvii .Foreword to the Second Edition xix .Preface xxi .Acknowledgements xxiii .About the Author xxv .PART ONE Products and the Background to Trading .CHAPTER 1 Trading 3 .1.1 How and why do people trade? 3 .1.2 Factors affecting trade 3 .1.3 Market participants 4 .1.4 Means by which trades are transacted 5 .1.5 When is a trade live? 7 .1.6 Consequences of trading 7 .1.7 Trading in the financial services industry 8 .1.8 What do we mean by a trade? 10 .1.9 Who works on the trade and when? 11 .1.10 Summary 12 .CHAPTER 2 Risk 13 .2.1 The concept of risk 13 .2.2 Risk is inevitable 13 .2.3 Quantifying risk 14 .2.4 Methods of dealing with risk 15 .2.5 Managing risk 15 .2.6 Problems of unforeseen risk 16 .2.7 Summary 16CHAPTER 3 Understanding Traded Products Follow the Money 17 .3.1 Spot trades 18 .3.2 Future (forward) 20 .3.3 Loan 21 .3.4 Deposit 23 .3.5 Swap 23 .3.6 Foreign exchange swap 25 .3.7 Equity spot 26 .3.8 Bond spot 27 .3.9 Option 27 .3.10 Credit default swap 30 .3.11 Summary 31 .CHAPTER 4 Asset Classes 33 .4.1 Interest rates 33 .4.2 Foreign exchange (Forex or FX) 40 .4.3 Equity 44 .4.4 Bonds and credit 46 .4.5 Commodities 53 .4.6 Trading across asset classes 58 .4.7 Summary 59 .CHAPTER 5 Derivatives, Structures and Hybrids 61 .5.1 Linear 61 .5.2 Nonlinear 62 .5.3 Some option terminology 66 .5.4 Option valuation 67 .5.5 Exotic options 67 .5.6 Structures and hybrids 69 .5.7 Importance of simpler products 70 .5.8 Trade matrix 71 .5.9 Summary 72 .CHAPTER 6 Liquidity, Price and Leverage 73 .6.1 Liquidity 73 .6.2 Price 75 .6.3 Leverage 76 .6.4 Summary 79 .PART TWO The Trade Lifecycle .CHAPTER 7 Anatomy of a Trade 83 .7.1 The underlying 83 .7.2 General 83 .7.3 Economic 84 .7.4 Sales 84 .7.5 Legal 84 .7.6 Booking 85 .7.7 Counterparty 85 .7.8 Timeline 86 .7.9 Summary 87 .CHAPTER 8 Trade Lifecycle 89 .8.1 Pre execution 89 .8.2 Execution and booking 91 .8.3 Confirmation 94 .8.4 Post booking 96 .8.5 Settlement 97 .8.6 What happens overnight 101 .8.7 Changes during lifetime 105 .8.8 Reporting during lifetime 110 .8.9 Exercise 110 .8.10 Maturity 112 .8.11 Example trade 113 .8.12 Summary 115 .CHAPTER 9 Cashflows and Asset Holdings 117 .9.1 Holdings 119 .9.2 Value of holding 120 .9.3 Reconciliation 121 .9.4 Consolidated reporting 122 .9.5 Realised and unrealised P&L 122 .9.6 Diversification 122 .9.7 Bank within a bank 123 .9.8 Custody of securities 123 .9.9 Risks 124 .9.10 Summary 124 .CHAPTER 10 Risk Management 125 .10.1 Traders 125 .10.2 Risk control 126 .10.3 Trading management 126 .10.4 Senior management 126 .10.5 How do risks arise? 126 .10.6 Different reasons for trades 128 .10.7 Hedging 128 .10.8 What happens when the trader is not around? 128 .10.9 Types of risk 130 .10.10 Trading strategies 132 .10.11 Hedging strategies 133 .10.12 Summary 134 .CHAPTER 11 Market Risk Control 135 .11.1 Various methodologies 135 .11.2 Need for risk 139 .11.3 Allocation of risk 139 .11.4 Monitoring of market risk 140 .11.5 Controlling the risk 140 .11.6 Responsibilities of the market risk control department 141 .11.7 Limitations of market risk departments 142 .11.8 Regulatory requirements 143 .11.9 Summary 145 .CHAPTER 12 Counterparty Risk Control 147 .12.1 Reasons for non–fulfilment of obligations 147 .12.2 Consequences of counterparty default 148 .12.3 Counterparty risk over time 148 .12.4 How to measure the risk 149 .12.5 Imposing limits 152 .12.6 Who is the counterparty? 153 .12.7 Collateral 153 .12.8 Activities of the counterparty risk control department 154 .12.9 What are the risks involved in analysing credit risk? 157 .12.10 Payment systems 158 .12.11 Summary 160 .CHAPTER 13 Accounting 161 .13.1 Balance sheet 161 .13.2 Profit and loss account 164 .13.3 Financial reports for hedge funds and asset managers 168 .13.4 Summary 169 .CHAPTER 14 P&L Attribution 171 .14.1 Benefits 171 .14.2 The process 172 .14.3 Example 173 .14.4 Summary 176 .CHAPTER 15 People 177 .15.1 Revenue generation 177 .15.2 Activities that support revenue generation 179 .15.3 Control 189 .15.4 Summary 200 .CHAPTER 16 Regulation 201 .16.1 Purpose of regulation 201 .16.2 What regulators require 202 .16.3 The problems 204 .16.4 Risk–weighted assets 205 .16.5 Credit valuation adjustment (CVA) 207 .16.6 Summary 213 .PART THREE What Really Happens .CHAPTER 17 Insights into the Real World of Capital Markets Here be Dragons! 217 .17.1 How it used to be 217 .17.2 Clash of cultures 219 .17.3 The equality of money 219 .17.4 The politics of money 220 .17.5 The good 222 .17.6 The bad 222 .17.7 The ugly 223 .17.8 Where are we heading? 223 .17.9 Summary 224 .CHAPTER 18 Case Studies 225 .18.1 Case study 1 Bonds 225 .18.2 Case study 2 Front office foreign exchange 235 .18.3 Case study 3 Equity confirmations project 247 .18.4 Summary 252 .CHAPTER 19 The IT Divide 253 .19.1 What is the IT divide? 253 .19.2 What problems does it cause? 255 .19.3 IT in the middle 255 .19.4 Improper use of IT 256 .19.5 Organisational blockers 257 .19.6 IT blockers 258 .19.7 How to bridge the gap 259 .19.8 Keeping up with change 260 .19.9 What does the business want from IT? 261 .19.10 What IT wants from the business 263 .19.11 Particular challenges of the financial sector 264 .19.12 Example of a good project 265 .19.13 Example of a bad project 266 .19.14 Summary 266 .CHAPTER 20 The Role of the Quantitative Analyst 267 .20.1 What is a quant? 267 .20.2 Where do quants work? 267 .20.3 Tools of the trade 269 .20.4 Place in organisation 270 .20.5 Where should quants sit? 270 .20.6 The boundaries of Quantland 271 .20.7 What does IT think of quants? 273 .20.8 Different types of quants 274 .20.9 Getting the job done 275 .20.10 Summary 275 .PART FOUR Behind the Scenes .CHAPTER 21 Developing Processes for New Products (and Improving Processes for Existing Products) 279 .21.1 What is a process? 279 .21.2 The status quo 279 .21.3 How processes evolve 280 .21.4 Inventory of current systems 282 .21.5 Coping with change 284 .21.6 Improving the situation 284 .21.7 Inertia 287 .21.8 Summary 288 .CHAPTER 22 New Products 289 .22.1 Origin of new products 289 .22.2 Trial basis 290 .22.3 New trade checklist 292 .22.4 New product evolution 294 .22.5 Risks 294 .22.6 Summary 295 .CHAPTER 23 Testing 297 .23.1 What is testing? 297 .23.2 Why is testing important? 298 .23.3 Who does testing? 298 .23.4 When should testing be done? 299 .23.5 What are the types of testing? 300 .23.6 Fault logging 302 .23.7 Risks 304 .23.8 Summary 305 .CHAPTER 24 Data 307 .24.1 Common characteristics 307 .24.2 Database 308 .24.3 Data 308 .24.4 Bid/offer spread 310 .24.5 Curves and surfaces 310 .24.6 Market data 313 .24.7 Back testing 317 .24.8 How can data go wrong? 317 .24.9 Typical data sources 320 .24.10 How to cope with corrections to data 321 .24.11 Data integrity 322 .24.12 The business risks of data 324 .24.13 Summary 325 .CHAPTER 25 Reports 327 .25.1 What makes a good report? 327 .25.2 Reporting requirements 328 .25.3 When things go wrong 333 .25.4 Redundancy 334 .25.5 Control 335 .25.6 Enhancement 335 .25.7 Security 335 .25.8 Risks 335 .25.9 Summary 336 .CHAPTER 26 Calculation 337 .26.1 What does the calculation process actually do? 337 .26.2 The calculation itself 343 .26.3 Sensitivity analysis 347 .26.4 Bootstrapping 348 .26.5 Calculation of dates 349 .26.6 Calibration to market 351 .26.7 Testing 351 .26.8 Integrating a model within a full system 352 .26.9 Risks associated with the valuation process 352 .26.10 Summary 352 .PART FIVE Summary of Risks .APPENDIX A Operational Risks 355 .APPENDIX B Human Risks 359 .APPENDIX C Control Risks 363 .APPENDIX D Processing Risks 367 .APPENDIX E Organisational Risks 373 .Recommended Reading 377 .Index 379
- ISBN: 978-1-118-99946-2
- Editorial: John Wiley & Sons
- Encuadernacion: Cartoné
- Páginas: 416
- Fecha Publicación: 23/10/2015
- Nº Volúmenes: 1
- Idioma: Inglés