Financial Engineering -Cash Instruments-

Financial Engineering-Cash Instruments-

Taehoon Kang

Financial Engineering -Cash-

Cash Securities Markets . .Primary Market () ..Secondary Market () . .

Primary market (Market Maker) Underwriter: . .Arranger: .

Secondary Market Dealer: .Market maker .Broker: , .


(Settlement) (settlement) (clear) .

(Debt Instruments) .() .Money market Capital market .

Money market: Capital market : 1 .

. . . 100% Par. 100% Premium. 100% Discount. 100%PriceYieldPremiumParDiscount


(Accured Interest)

, , .


Day Count Fraction (DCF) .1. ACT/ACT . 5 20 , 7 8 DCF = (12 + 30 + 7)/365 = 49/3652. ACT/365 1 365 . 5 20 , 7 8 DCF = (12 + 30 + 7)/365 = 49/3653. ACT/360 1 360 ( 30). 5 20 , 7 8 DCF = (12 + 30 + 7)/360 = 49/3604. 30/360 30 1 360 . 5 20 , 7 8 DCF = (11 + 30 + 7)/360 = 48/360


Accrued Interest

A B 100, 6.3%, 2000 59, 1998 7 9 .ACT/365 DCF .

1) : 100 6.3% = 100 * 0.0630= 6.32) DCF : 1998 5 9 7 9 5 23, 6 30, 7 8.DCF = (23+30+8)/365 = 61/3653) Accrued Interest = Full Interest Amount * DCF= 6.3 * 61/365= 1.053


Money Market () . cash equivalents .1. Federal Fund RateFederal Funds (Fed Funds) . . Fed Funds . Fed Funds Rates overnight .

2. Eurodollar Rates . 1 .3 6 . DCF ACT/360.LIBOR(London Interbank Offered Rate) .LIBOR .LIBID(London Interbank Bid Rate) . LIBID/LIBOR 1/8 . LIBOR 11 . LIBOR .


3. Repo Rates (Repurchase Agreement Rates)(Repo Repurchase Agreement) . (Reverse Repo) Repo .4. US Treasury Bills ( ) 3, 6 1 . . .DCF ACT/360.5. Commercial Paper ()CP . 270 SEC . CP T-bill . .DCF ACT/360.6.Certificates of DepositCD . . .1 CD , 1 6 . . DCF ACT/360.


(Debt Securities)

. , . , . , , . ,

1. Bond

, . coupon rates . (, , ) .


(quoted price) .

) 7% $10,000 2 :1 6.23%, 2 6.03% .1) Coupon Amount = Coupon Rate Face Value= 0.0700 $10,000= $7002) zero coupon rates

= $658.95 + +9,517.57= $10,176.523)

Bond Price== $1.0177 101.77%


(Net Proceeds) (Invoice Price) . . .

) 2008 3 18 Ford 98.50%, 1998 7 11 . 10% $1,000,000 ? DCF ACT/365 .

1) (accrued interest) i) 1 = = 0.1000 $1,000,000 = $100,000ii) DCF = ( 14 + 30 + 31 + 30 +10)/365 = 115/365 iii) = 1 DCF = $100,000 115/365 = $31,506.85

2) = = $1,000,000 0.9850 = $985,000

3) = + = $985,000 + $31,506.85 = $1,016,506.85 4) = / = $1,046,506.85/$1,000,000 = 1.01650685 101.650685%


(Credit Risk)

. , , .

. ( ) () .

. ( ).

. .


. . . .

) 10% $1,000 5 1) = Coupon Rate Face Value = 0.1000 $1,000 = $1002) .

TermZero Coupon Rate(p.a.)Discount Rate (p.a.)16.23%6.28%26.03%6.08%36.20%6.25%46.35%6.40%56.42%6.47%


- AAA

PV

= $94.09 + $88.87 + $83.37 + $78.02 + $804 = $1,148.35 = $1,148.35/$1,000 = 1.1484 114.8%

- A

PV

= $93.96 + $88.61 + $83.02 + $77.59 + $798.36 = $1,141.54 = $1,141.54/$1,000 = 1.114154 114.154%

- BBB

PV

= $93.69 + $88.12 + $82.32 + $76.72 + $787.22 = $1,128.07 = $1,128.07/$1,000 = 1.12807 112.807%


(US Treasury Notes and Bonds) . . T-note 2, 3, 5, 10.T-bond 30 .

2 6

Regular settlement: Skip settlement: 2 Corporate settlement: 3 DCF ACT/ACT.

T-note T-bond . tick (1/32 = 0.03125%) . + 1/2 tick, 1/4 1/4 tick .

98 - 15= 98% + 15 ticks= 98% + 15.0 0.03125%= 98.46875%


(Net Proceeds) (Invoice Price) .

) KDB 2008 3 15, 6.25%, 1998 7 10, $1,000,000 . 101 - 14 + . ?1) : 1 = = 0.03125 $1,000,000 = $31,250DCF = (17 + 30 + 31 + 30 + 9)/(17 + 30 + 31 + 30 + 31 + 31 + 14)= 117/184 ( 3 15 9 15) = 1 DCF = $31,250 117/184 = $19,870.922) : = 101 - 14+ = 101% + 14.5 0.03125% = 101.453125% = = $1,000,000 1.01453125 = $1,014,531.253) = + = $1,014,531.25 + 19,870.92 = $1,034,402.174) : = / = $1,034,402.17 / $1,000,000 = 1.03440217 103.440217%


Mortgage Backed Securities (MBS) pool . . , . (30 ) (pool) . Mortgate-Backed Securites ( ) .

Home OwnersCiticorp MortgageFannie MaeMerryll LynchInvestorsLienMortgagesMortgagesMortgages Backed Securities (Cash flows)Home financingcashcashcashMortgate PoolSecuritization


Municipal Bonds

30 .

General Obligation Bonds: .Revenue Bonds: ( , )

Revenue Bond , General Obligation Bond .

6 . 3 .DCF 30/360.


(Corporate Bonds) . . . .

6 . 3 .DCF 30/360.

Eurobonds () . . LIBOR (over or under spread) .

1 . 3 .DCF 30/360.


(Equity)

. . , . . (going public Initial Public Offering = IPO) . , , , , .

.


(Dividend Yield)

. .

30,000 1 1,200

=

= 1,200/30,000 = 0.04 4.00%

(Price/Earnings Ratio; PER)P/E Ratio . .

British Telekom $50.00 $4.25,P/E Ratio =

= $50.00 / $4.25 = 11.76


Price/Book Ratio (PBR)

( ) . .

Bankers Trust $70.00 $45.66

Price/Book Ratio =

= $70.00 / $45.66 = 1.5331

Bankers Trust 53.31% .


Convertible Bonds ()

(CB) .(conversion ratio) CB .

(conversion price) CB .) 100,000 8, 100,000/8 = 12,500.

(conversion parity price) 1 .) 90,000 , 90,000/8 = 11,250.

(conversion value) .) 10,000, 10,000 8 = 80,000.


. .

.(+) .

.

) CB $100, 5, $20, $30 . CB 160% . .

=

= $30 / $20 = 1.5 150%.

=

= (1.6000 - 1.5000) /1.5000 = 0.0667 6.67%CB 6.67% .


(Equity Warrants)

.

(bond with warrants). .


. .=, , , = , , , . . . , .: . . , , +alpha .(bid-ask spread) : . . (UST, MBS, Swaps ), . . . . .

1. .(1 366 )2. 1 1 365 .3. 1 1 360 . 4. 1 30 1 360 .

1 2 6 30 30 , 3 4 6 1 30 30 .

1,2 5 12 ,3 5 5 30 , 12 ,4 5 1 30 11 . , . , , , MMF, Mutual Fund. CD .

- Repo repo rate. (T-bill, T-note) . . . .

. , . . , .

. term repo . MBS MBS MBS . . . MBS . .

Constant Prepayment Ratio (CPR) .CPR CPR ( ) .

?,

, , , (,)

. . ., PER(Price/Earnings Ratio), Price/Book Value Ratio. Ratio .

Financial Engineering -Cash Instruments-

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