清华大学经管学院--金融工程1.pptVIP

INTRODUCTION TO FINANCIAL ENGINEERING ? Fred Song September 2001 Introductory What is Finance? What is Financial Engineering? What’s the role of Financial Engineering in New Economy? What is Finance? Money Banking — Monetary Economics Corporate Finance Capital Market (Investments) CHAPTER ONE: MM Theory and No Arbitrage MM Theory Assets = Liabilities + Equity Accounting Equality: duel entity system Book value measurement Corporate Finance Assets Liabilities and Equity Asset 1 Asset 2 Liabilities Asset 3 . . Equity . Asset n Total Assets Total Liabilities and Equity Capital Structure Financial leverage: MM Theory MM assumptions: Frictionless assumptions No income taxes No transaction costs No information asymmetry No cost to resolve interest conflicts among stakeholders All liabilities are risk-free A mini - case Two companies EBIT Capital structure Firm value MM Proposition 1 Proposition 1: Under MM Assumption, i.e., in the frictionless environment, the total market value of a firm is independent of its capital structure. Probability Distribution of EBIT and EPS for the Two Companies Implication of MM Theory Frictionless environment does not exist in the real world. Taxes Transaction costs Information asymmetry Costs resolving interest conflict Liabilities are risk-bearing — Tax Shield Company A: * New economy Financial engineering and e-commerce International Finance — International Economics Financial Economics Multinational Corporate Finance International Financial Market Financial Engineering What is Financial Engineering? Generalizing: Financial Engineering involves the design, the development, and the implementation of innovative financial instruments and processes, and the formulation of creative solutions to problems in finance. Specializ