Capital markets : institutions and instruments / Frank J. Fabozzi, Franco Modigliani ; with contributions from Frank J. Jones.

Format:

Book

Author/Creator:

Fabozzi, Frank J.

Contributor:

Modigliani, Franco.

Alumni and Friends Memorial Book Fund.

Language:

English

Subjects (All):

Capital market.

Physical Description:

xii, 644 pages : illustrations ; 26 cm

Edition:

Third edition.

Place of Publication:

Upper Saddle River, N.J. : Prentice Hall, 2003.

Summary:

This text offers the most comprehensive capital market coverage available. It covers the instruments, the players, and the principles of valuation with an excellent blend of theory and practice. Topics include Overview of Market Participants and Financial Innovation, Depository Institutions, Investment Banking Firms, Stock Options Market, The Theory and Structure of Interest Rates, and The Market for Foreign Exchange and Risk Control Instruments. Appropriate for corporate treasurers.

Contents:

Financial Assets 1

Financial Markets 9

Derivative Markets 13

Section I The Players 17

Chapter 2 Overview of Market Participants and Financial Innovation 17

Issuers and Investors 18

Role of Financial Intermediaries 19

Overview of Asset/Liability Management for Financial Institutions 22

Regulation of Financial Markets 24

Financial Innovation 27

Chapter 3 Depository Institutions 32

Asset/Liability Problem of Depository Institutions 33

Commercial Banks 35

Savings and Loan Associations 47

Savings Banks 50

Credit Unions 50

Chapter 4 Nondepository Institutions 55

Insurance Companies 56

Investment Companies 65

Pension Funds 74

Foundations 78

Chapter 5 Investment Banking Firms 82

Investment Banking 82

Section II Organization and Structure of Markets 96

Chapter 6 The Primary Markets 96

Regulation of the Issuance of Securities 96

Variations in the Underwriting of Securities 99

World Capital Markets Integration and Fund-Raising Implications 102

Motivation for Raising Funds Outside of the Domestic Market 103

Chapter 7 Secondary Markets 107

Function of Secondary Markets 107

Trading Locations 108

Market Structures 108

Perfect Markets 109

Secondary Market Trading Mechanics 110

Role of Brokers and Dealers in Real Markets 114

Market Efficiency 116

Transaction Costs 118

Section III Risk and Return Theories 122

Chapter 8 Risk and Return Theories: I 122

Measuring Investment Return 123

Portfolio Theory 126

Risky Assets Versus Risk-Free Assets 126

Measuring Portfolio Risk 127

Diversification 131

Choosing a Portfolio of Risky Assets 132

Chapter 9 Risk and Return Theories: II 140

Economic Assumptions 141

Capital Market Theory 142

The Capital Asset Pricing Model 145

The Multifactor CAPM 154

Arbitrage Pricing Theory Model 155

Some Principles to Take Away 160

Section IV Derivatives Markets 163

Chapter 10 Introduction to Financial Futures Markets 163

Mechanics of Futures Trading 164

Futures Versus Forward Contracts 167

Risk and Return Characteristics of Futures Contracts 167

Pricing of Futures Contracts 168

Theoretical Futures Price Based on Arbitrage Model 170

General Principles of Hedging with Futures 174

The Role of Futures in Financial Markets 184

Chapter 11 Introduction to Options Markets 190

Option Contract Defined 190

Differences Between Options and Futures Contracts 192

Risk and Return Characteristics of Options 192

Pricing of Options 201

Economic Role of the Option Markets 212

Exotic Options 214

Chapter 12 Introduction to Swaps, Caps, and Floor Markets 219

Swaps 219

Cap and Floor Agreements 224

Section V The Equity Market 228

Chapter 13 Common Stock Market: I 228

Overview of Trading Locations in the United States 229

Stock Exchanges 230

The OTC Market 234

The Third Market 237

The Fourth Market: Alternative Trading Systems 237

Other Types of Common Stock Trading 239

The Role and Regulation of Dealers in Exchange and OTC Markets 239

Major International Stock Exchanges 245

Dealers in Major Markets 251

Chapter 14 Common Stock Market: II 254

Trading Mechanics 254

Transactions Costs 259

Trading Arrangements for Retail and Institutional Investors 263

Price Limits and Collars 269

Stock Market Indicators 271

Pricing Efficiency of the Stock Market 274

Global Diversification 276

Chapter 15 Stock Options Market 283

History of Exchange-Traded Options 283

Features of Exchange-Traded Stock Options 284

Stock Option Pricing Models 285

Option Strategies 291

Pricing Efficiency of the Stock Options Market 296

Warrants 297

Chapter 16 Stock Index Derivative Markets 302

Stock Index Options 302

Stock Index Futures Market 308

Equity Swaps 320

Stock Index Contracts, Stock Price Volatility, and Black Monday 322

Section VI Interest Rate Determination and Bond Valuation 332

Chapter 17 The Theory and Structure of Interest Rates 332

The Theory of Interest Rates 333

The Structure of Interest Rates 347

Chapter 18 Valuation of Debt Contracts and Their Price Volatility Characteristics 358

Features of Debt Contracts 359

Basic Valuation Principles 359

Return from a Bond: Yield to Maturity Measure 361

Price of an Option-Free Bond 362

Reasons for Changes in Bond Price 362

What Determines the Premium-Par Yield 363

Reinvestment of Cash Flow and Yield 363

Bond Price Volatility 364

Chapter 19 The Term Structure of Interest Rates 380

The Yield Curve and the Term Structure 380

Forward Rates 387

Determinants of the Shape of the Term Structure 391

Section VII Debt Markets 400

Chapter 20 Money Markets 400

Treasury Bills 401

Commercial Paper 403

Large-Denomination Negotiable Certificates of Deposit 407

Bankers Acceptances 409

Repurchase Agreements 411

Federal Funds 415

Chapter 21 Treasury and Agency Securities Markets 418

Treasury Securities 419

Federal Agency Securities 434

A Look at Non-U.S. Government Bond Markets 435

Chapter 22 Corporate Senior Instruments Markets: I 441

Credit Risk 442

Medium-Term Notes 443

Bank Loans 445

Chapter 23 Corporate Senior Instruments Markets: II 449

Corporate Bonds 449

Preferred Stock 462

Bankruptcy and Creditor Rights 464

Default and Recovery Statistics 466

Chapter 24 Municipal Securities Markets 471

Types and Features of Municipal Securities 472

Municipal Bond Ratings 475

Tax Risks Associated with Investing in Municipal Securities 476

The Primary Market 477

The Secondary Market 477

Yields on Municipal Bonds 478

Regulation of the Municipal Securities Market 479

Chapter 25 The Mortgage Market 482

What Is a Mortgage 483

Mortgage Origination 483

Types of Mortgage Designs 486

Commercial Mortgage Loans 494

Investment Risks 495

Chapter 26 The Market for Mortgage-Backed Securities 499

Development of the Secondary Mortgage Market 499

Mortgage Pass-Through Securities 501

Collateralized Mortgage Obligations 515

Stripped Mortgage-Backed Securities 524

Yields on Mortgage-Backed Securities 525

Commercial Mortgage-Backed Securities 525

Chapter 27 The Market for Asset-Backed Securities 528

Motivation for Issuing an Asset-Backed Security 529

Features of an Asset-Backed Security 530

Major Sectors of the ABS Market 534

Credit Consideration for a Corporate Bond Versus an Asset-Backed Security 545

Chapter 28 Exchange-Traded Interest Rate Futures and Options 552

Interest Rate Futures Contracts 553

Exchange-Traded Interest Rate Options 564

Chapter 29 OTC Interest Rate and Credit Derivative Markets 574

Over-the-Counter Interest Rate Options 575

Forward Rate Agreement 576

Interest Rate Swaps 576

Interest Rate Agreements 598

Credit Derivatives 600

Section VIII Foreign Exchange Markets 609

Chapter 30 The Market for Foreign Exchange and Risk Control Instruments 609

Foreign Exchange Rates 610

Spot Market 611

Instruments for Hedging Foreign Exchange Risk 615.

Notes:

Includes bibliographical references and index.

Local Notes:

Acquired for the Penn Libraries with assistance from the Alumni and Friends Memorial Book Fund.

ISBN:

013067334X

OCLC:

48761738