Capital Markets, Fifth Edition

Institutions, Instruments, and Risk Management

by Fabozzi

ISBN: 9780262331579 | Copyright 2015

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Over the last fifty years, an extensive array of instruments for financing, investing, and controlling risk has become available in financial markets, with demand for these innovations driven by the needs of investors and borrowers. The recent financial crisis offered painful lessons on the consequences of ignoring the risks associated with new financial products and strategies. This substantially revised fifth edition of a widely used text covers financial product innovation with a new emphasis on risk management and regulatory reform. Chapters from the previous edition have been updated, and new chapters cover material that reflects recent developments in financial markets.

The book begins with an introduction to financial markets, offering a new chapter that provides an overview of risk—including the key elements of financial risk management and the identification and quantification of risk. The book then covers market participants, including a new chapter on collective investment products managed by asset management firms; the basics of cash and derivatives markets, with new coverage of financial derivatives and securitization; theories of risk and return, with a new chapter on return distributions and risk measures; the structure of interest rates and the pricing of debt obligations; equity markets; debt markets, including chapters on money market instruments, municipal securities, and credit sensitive securitized products; and advanced coverage of derivative markets. Each chapter ends with a review of key points and questions based on the material covered.

The fifth edition of Capital Markets maintains the strength of the previous editions with its unique coverage of structured finance and applications of derivatives. In addition to an updating of global regulations resulting from the recent financial crisis, the new edition takes a much greater focus on risk management than the previous editions.

Turan G. Bali Robert Parker Chair Professor of Finance, McDonough School of Business, Georgetown University

The book provides very comprehensive coverage of all aspects of capital markets. It is a must-have book for investors, traders, risk managers, and regulators. It is also an excellent book for students of finance.

Yu Zhu retired Professor of Finance, China Europe International Business School
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Contents (pg. vii)
Preface (pg. xxvii)
Acknowledgments (pg. xxxv)
I INTRODUCTION (pg. 1)
1 Financial Assets and Financial Markets (pg. 3)
2 Overview of Risks and Risk Management (pg. 29)
II THE PLAYERS (pg. 61)
3 Overview of Market Participants (pg. 63)
4 Depository Institutions (pg. 107)
5 Insurance Companies and Defined Benefit Pension Plans (pg. 141)
6 Managers of Collective Investment Vehicles (pg. 175)
7 Investment Banking Firms (pg. 205)
III BASICS OF CASH AND DERIVATIVES MARKETS (pg. 229)
8 Primary and Secondary Markets (pg. 231)
9 Introduction to Linear Payoff Derivatives (pg. 271)
10 Introduction to Nonlinear Payoff Derivatives (pg. 313)
11 Securitization and Its Role in Financial Markets (pg. 351)
IV RISK AND RETURN THEORIES (pg. 375)
12 Return Distributions and Risk Measures (pg. 377)
13 Portfolio Selection Theory (pg. 411)
14 Asset Pricing Theories (pg. 435)
V INTEREST RATE DETERMINATION AND DEBT PRICING (pg. 465)
15 The Theory and Structure of Interest Rates (pg. 467)
16 Valuation of Debt Contracts and Their Price Volatility Characteristics (pg. 499)
17 The Term Structure of Interest Rates (pg. 527)
VI EQUITY MARKETS: VI EQUITY MARKETS (pg. 557)
18 The Structure of the Common Stock Market (pg. 559)
19 Common Stock Strategies and Trading Arrangements (pg. 589)
VII DEBT MARKETS (pg. 623)
20 The Money Market for Private Debt Instruments (pg. 625)
21 Treasury and Agency Securities Markets (pg. 659)
22 Municipal Securities Markets (pg. 691)
23 Corporate Senior Instruments Markets (pg. 715)
24 International Bond Markets (pg. 749)
25 The Residential Mortgage Market (pg. 765)
26 The Market for U.S. Agency Residential Mortgage – Backed Securities (pg. 793)
27 The Market for Credit-Sensitive Securitized Products (pg. 825)
VIII DERIVATIVE MARKETS (pg. 855)
28 The Market for Equity Derivatives (pg. 857)
29 The Market for Interest Rate Risk Transfer Vehicles: Exchange-Traded Products (pg. 907)
30 The Market for Interest Rate Risk Transfer Vehicles: OTC Instruments (pg. 929)
31 The Market for Credit Risk Transfer Vehicles (pg. 971)
32 The Market for Foreign Exchange and Risk Control Instruments (pg. 997)
Index (pg. 1019)

Frank Fabozzi

Frank J. Fabozzi is Professor of Finance at EDHEC Business School in France and has held positions at Yale School of Management, Princeton University, and MIT Sloan School of Management. He is the author of Capital Markets: Institutions, Instruments, and Risk Management (fifth edition, MIT Press) and other books.


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