Finance Course Outline
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The Turtle Becomes the Hare the Implications of Artificial Short-Termism for Climate Finance
THE TURTLE BECOMES THE HARE THE IMPLICATIONS OF ARTIFICIAL SHORT-TERMISM FOR CLIMATE FINANCE DISCUSSION PAPER – OCTOBER 2014 1. INTRODUCTION 2°INVESTING INITIATIVE A growing narra@ve arounD short-termism. A The 2° Inves@ng Ini@ave [2°ii] is a growing chorus of voices have argued that the mul-stakeholder think tank finance sector suffers from ‘short-termism’ – working to align the financial sector focusing on short-term risks and benefits at the with 2°C climate goals. Our research expense of long-term risk-return op@mizaon. and advocacy work seeks to: While the academic literature behind this narrave • Align investment processes of financial instuons with 2°C has enjoyed a renaissance since the 1990s, the climate scenarios; global financial crisis and its aermath triggered a • Develop the metrics and tools to new focus on the issue, by academics, measure the climate performance of policymakers, and financial ins@tu@ons themselves. financial ins@tu@ons; • Mobilize regulatory and policy Impact of short-termism. The new focus has placed incen@ves to shiJ capital to energy par@cular emphasis on short-termism as a cause of transi@on financing. the global financial crisis. In this role, short-termism is seen to have taken long-term (or even medium- The associaon was founded in term) risks off the radar screen. Short-termism is 2012 in Paris and has projects in Europe, China and the US. Our work also blamed for models that extrapolated beyond is global, both in terms of geography short-term factors and were built with limited and engaging key actors. -
Short Sellers and Financial Misconduct 6 7 ∗ 8 JONATHAN M
jofi˙1597 jofi2009v2.cls (1994/07/13 v1.2u Standard LaTeX document class) June 25, 2010 19:56 JOFI jofi˙1597 Dispatch: June 25, 2010 CE: AFL Journal MSP No. No. of pages: 35 PE: Beetna 1 THE JOURNAL OF FINANCE • VOL. LXV, NO. 5 • OCTOBER 2010 2 3 4 5 Short Sellers and Financial Misconduct 6 7 ∗ 8 JONATHAN M. KARPOFF and XIAOXIA LOU 9 10 ABSTRACT 11 12 We examine whether short sellers detect firms that misrepresent their financial state- ments, and whether their trading conveys external costs or benefits to other investors. 13 Abnormal short interest increases steadily in the 19 months before the misrepresen- 14 tation is publicly revealed, particularly when the misconduct is severe. Short selling 15 is associated with a faster time-to-discovery, and it dampens the share price inflation 16 that occurs when firms misstate their earnings. These results indicate that short sell- 17 ers anticipate the eventual discovery and severity of financial misconduct. They also convey external benefits, helping to uncover misconduct and keeping prices closer to 18 fundamental values. 19 20 21 22 SHORT SELLING IS A CONTROVERSIAL ACTIVITY. Detractors claim that short sell- 23 ers undermine investors’ confidence in financial markets and decrease market 24 liquidity. For example, a short seller can spread false rumors about a firm 25 in which he has a short position and profit from the resulting decline in the 1 26 stock price. Advocates, in contrast, argue that short selling facilitates market 27 efficiency and the price discovery process. Investors who identify overpriced 28 firms can sell short, thereby incorporating their unfavorable information into 29 market prices. -
Asset Securitization
L-Sec Comptroller of the Currency Administrator of National Banks Asset Securitization Comptroller’s Handbook November 1997 L Liquidity and Funds Management Asset Securitization Table of Contents Introduction 1 Background 1 Definition 2 A Brief History 2 Market Evolution 3 Benefits of Securitization 4 Securitization Process 6 Basic Structures of Asset-Backed Securities 6 Parties to the Transaction 7 Structuring the Transaction 12 Segregating the Assets 13 Creating Securitization Vehicles 15 Providing Credit Enhancement 19 Issuing Interests in the Asset Pool 23 The Mechanics of Cash Flow 25 Cash Flow Allocations 25 Risk Management 30 Impact of Securitization on Bank Issuers 30 Process Management 30 Risks and Controls 33 Reputation Risk 34 Strategic Risk 35 Credit Risk 37 Transaction Risk 43 Liquidity Risk 47 Compliance Risk 49 Other Issues 49 Risk-Based Capital 56 Comptroller’s Handbook i Asset Securitization Examination Objectives 61 Examination Procedures 62 Overview 62 Management Oversight 64 Risk Management 68 Management Information Systems 71 Accounting and Risk-Based Capital 73 Functions 77 Originations 77 Servicing 80 Other Roles 83 Overall Conclusions 86 References 89 ii Asset Securitization Introduction Background Asset securitization is helping to shape the future of traditional commercial banking. By using the securities markets to fund portions of the loan portfolio, banks can allocate capital more efficiently, access diverse and cost- effective funding sources, and better manage business risks. But securitization markets offer challenges as well as opportunity. Indeed, the successes of nonbank securitizers are forcing banks to adopt some of their practices. Competition from commercial paper underwriters and captive finance companies has taken a toll on banks’ market share and profitability in the prime credit and consumer loan businesses. -
Is the International Role of the Dollar Changing?
Is the International Role of the Dollar Changing? Linda S. Goldberg Recently the U.S. dollar’s preeminence as an international currency has been questioned. The emergence of the euro, changes www.newyorkfed.org/research/current_issues ✦ in the dollar’s value, and the fi nancial market crisis have, in the view of many commentators, posed a signifi cant challenge to the currency’s long-standing position in world markets. However, a study of the dollar across critical areas of international trade January 2010 ✦ and fi nance suggests that the dollar has retained its standing in key roles. While changes in the global status of the dollar are possible, factors such as inertia in currency use, the large size and relative stability of the U.S. economy, and the dollar pricing of oil and other commodities will help perpetuate the dollar’s role as the dominant medium for international transactions. Volume 16, Number 1 Volume y many measures, the U.S. dollar is the most important currency in the world. IN ECONOMICS AND FINANCE It plays a central role in international trade and fi nance as both a store of value Band a medium of exchange. Many countries have adopted an exchange rate regime that anchors the value of their home currency to that of the dollar. Dollar holdings fi gure prominently in offi cial foreign exchange (FX) reserves—the foreign currency deposits and bonds maintained by monetary authorities and governments. And in international trade, the dollar is widely used for invoicing and settling import and export transactions around the world. -
Ladies of the Ticker
By George Robb During the late 19th century, a growing number of women were finding employ- ment in banking and insurance, but not on Wall Street. Probably no area of Amer- ican finance offered fewer job opportuni- ties to women than stock broking. In her 1863 survey, The Employments of Women, Virginia Penny, who was usually eager to promote new fields of employment for women, noted with approval that there were no women stockbrokers in the United States. Penny argued that “women could not very well conduct the busi- ness without having to mix promiscuously with men on the street, and stop and talk to them in the most public places; and the delicacy of woman would forbid that.” The radical feminist Victoria Woodhull did not let delicacy stand in her way when she and her sister opened a brokerage house near Wall Street in 1870, but she paid a heavy price for her audacity. The scandals which eventually drove Wood- hull out of business and out of the country cast a long shadow over other women’s careers as brokers. Histories of Wall Street rarely mention women brokers at all. They might note Victoria Woodhull’s distinction as the nation’s first female stockbroker, but they don’t discuss the subject again until they reach the 1960s. This neglect is unfortu- nate, as it has left generations of pioneering Wall Street women hidden from history. These extraordinary women struggled to establish themselves professionally and to overcome chauvinistic prejudice that a career in finance was unfeminine. Ladies When Mrs. M.E. -
Codes of Finance Engineering Derivatives in a Global Bank
Codes of Finance Engineering Derivatives in a Global Bank Vincent Antonin Lepinay Submitted in partial fulfillment of the requirements for the degree of Doctor of Sociology in the Graduate School of Arts and Sciences COLUMBIA UNIVERSITY 2011 © 2011 Vincent Antonin Lepinay All rights reserved Abstract Codes of Finance Engineering Derivatives in a Global Bank Vincent Antonin Lepinay Codes of Finance is an ethnography of a global bank inventing new derivative products. It describes the multiple languages invented to describe and control these new products. It analyzes the recent discussions about financial derivatives and offers a new framework to understand financial innovation. Contents Acknowledgments Preface: Financial Innovation from within the Bank Prologue: A Day in a Trader’s Life Introduction: Accessing the Organization of the Bank and Asking Questions about It Part I. From Models to Books Chapter 1. Thinking Financially and Exploring the Code Chapter 2. Hedging and Speculating with Portfolios Part II. Topography of a Secret Experiment Chapter 3. The Room as a Market Chapter 4. The Memory of Banking Part III. Porous Banking: Clients and Investors in Search of Accounts Chapter 5. Selling Finance and the Promise of Contingency Chapter 6. The Costs of Price Chapter 7. Reverse Finance Conclusion: What Good Are Derivatives? Notes Bibliography i Acknowledgments Michel Callon and Bruno Latour generously read versions of this book. Its felicitous moments owe them much: in different styles, they have always been present, extending their supervision to a protective attention that nurtured a unique environment and great relationships. At the Centre de Sociologie de l’Innovation, other scholars also were helpful readers; Fabian Muniesa stands out as a great intellectual companion. -
Columbia University, Master in Financial Engineering
My Life as a Quant Student: Reflections on Studying Financial Engineering at Columbia University (Disclaimer: google Emanuel Derman) After finishing my bachelor’s studies at IES and MFF UK I decided to attend Master of Science in Financial Engineering program at Columbia University. As it was quite a journey, I’d like to share my experience and hopefully inspire someone to pursue their goals in the future. About the program The Financial Engineering program at Columbia is a cornerstone program of the Industrial Engineering and Operations Research department at the Fu Foundation School of Engineering and Applied Science. It is a 36 credits program (which basically means 12 subjects) and it runs from September to either May, August or the following December, depending on how fast you want to finish. Most students choose to finish in December as it gives them enough time to have summer internship. There are six mandatory courses in the first two semesters and students can take another six electives according to their interests and/or concentration. As part of the program you can choose to concentrate in either Finance and Economics, Asset Management, Derivatives, Computation and Programming and Trading Systems. Financial Engineering itself is a multidisciplinary field involving financial theory, the methods of engineering, the tools of mathematics and the practice of programming. If you want to inspect more about the program, you can find all the information here: http://ieor.columbia.edu/ms-financial-engineering If you are interested in quant programs in general, I would suggest to take a look at this forum: www.quantnet.com You can find there plenty of resources about quant programs, applications, schools, jobs, etc. -
The Professional Obligations of Securities Brokers Under Federal Law: an Antidote for Bubbles?
Loyola University Chicago, School of Law LAW eCommons Faculty Publications & Other Works 2002 The rP ofessional Obligations of Securities Brokers Under Federal Law: An Antidote for Bubbles? Steven A. Ramirez Loyola University Chicago, School of Law, [email protected] Follow this and additional works at: http://lawecommons.luc.edu/facpubs Part of the Securities Law Commons Recommended Citation Ramirez, Steven, The rP ofessional Obligations of Securities Brokers Under Federal Law: An Antidote for Bubbles? 70 U. Cin. L. Rev. 527 (2002) This Article is brought to you for free and open access by LAW eCommons. It has been accepted for inclusion in Faculty Publications & Other Works by an authorized administrator of LAW eCommons. For more information, please contact [email protected]. THE PROFESSIONAL OBLIGATIONS OF SECURITIES BROKERS UNDER FEDERAL LAW: AN ANTIDOTE FOR BUBBLES? Steven A. Ramirez* I. INTRODUCTION In the wake of the stock market crash of 1929 and the ensuing Great Depression, President Franklin D. Roosevelt proposed legislation specifically designed to extend greater protection to the investing public and to elevate business practices within the securities brokerage industry.' This legislative initiative ultimately gave birth to the Securities Exchange Act of 1934 (the '34 Act).' The '34 Act represented the first large scale regulation of the nation's public securities markets. Up until that time, the securities brokerage industry4 had been left to regulate itself (through various private stock exchanges). This system of * Professor of Law, Washburn University School of Law. Professor William Rich caused me to write this Article by arranging a Faculty Scholarship Forum at Washburn University in the'Spring of 2001 and asking me to participate. -
Systemic Risk and the Refinancing Ratchet Effect
Journal of Financial Economics 108 (2013) 29–45 Contents lists available at SciVerse ScienceDirect Journal of Financial Economics journal homepage: www.elsevier.com/locate/jfec Systemic risk and the refinancing ratchet effect$ Amir E. Khandani a,c, Andrew W. Lo b,c,d,n, Robert C. Merton b a Morgan Stanley, New York, United States b MIT Sloan School of Management, 100 Main Street, E62-618, Cambridge, MA 02142, United States c Laboratory for Financial Engineering, MIT Sloan School of Management, United States d AlphaSimplex Group, LLC, United States article info abstract Article history: The combination of rising home prices, declining interest rates, and near-frictionless Received 13 June 2010 refinancing opportunities can create unintentional synchronization of homeowner leverage, Received in revised form leading to a ‘‘ratchet’’ effect on leverage because homes are indivisible and owner-occupants 7 May 2012 cannot raise equity to reduce leverage when home prices fall. Our simulation of the U.S. Accepted 16 May 2012 housing market yields potential losses of $1.7 trillion from June 2006 to December 2008 Available online 20 November 2012 with cash-out refinancing vs. only $330 billion in the absence of cash-out refinancing. JEL classification: The refinancing ratchet effect is a new type of systemic risk in the financial system and does G01 not rely on any dysfunctional behaviors. G13 & 2012 Elsevier B.V. All rights reserved. G18 G21 E17 R28 Keywords: Systemic risk Financial crisis Household finance Real estate Subprime mortgage 1. Introduction mainly by the value of the underlying real estate. This feature makes the market value of the collateral very important in Home mortgage loans—one of the most widely used measuring the risk of a mortgage.1 To reduce the risk of financial products by U.S. -
Project Finance Course Outline
PROJECT FINANCE COURSE OUTLINE Term: Spring 2009 (1st half-semester) Instructor: Adjunct Prof. Donald B. Reid Time: Office: KMEC 9-95, 212-759-5655 Classroom: Email: [email protected] Admin aide: Contact: [email protected] Background Project finance is used on a global basis to finance over $300 billion of capital- intensive projects annually in industries such as power, transportation, energy, chemicals, and mining. This increasingly critical, financial technique relies on non- recourse, risk-mitigated cash flows of a specific project, not the balance sheet or corporate guarantee of a sponsor, to support the funding, using a broad-based set of inter-disciplinary skills Not all projects can support project financing. Project finance is a specialized financial tool necessitating an in-depth understanding of markets, technology, sponsors, offtakers, contracts, operators, and financial structuring. It is important to understand the key elements that support a project financing and how an investor or lender can get comfortable with making a loan or investment. Several industries will be used to demonstrate project-financing principles, with emphasis on one of the most important, power. Objective of the Course The purpose of the course is to understand what project finance is, its necessary elements, why it is used, how it is used, its advantages and its disadvantages. At the end of the course, students should be able to identify projects that meet the essential criteria for a project financing and know how to create the structure for a basic project financing. The course will study the necessary elements critical to project financing to include product markets, technology, sponsors, operators, offtakers, environment, consultants, taxes and financial sources. -
Derivative Securities
2. DERIVATIVE SECURITIES Objectives: After reading this chapter, you will 1. Understand the reason for trading options. 2. Know the basic terminology of options. 2.1 Derivative Securities A derivative security is a financial instrument whose value depends upon the value of another asset. The main types of derivatives are futures, forwards, options, and swaps. An example of a derivative security is a convertible bond. Such a bond, at the discretion of the bondholder, may be converted into a fixed number of shares of the stock of the issuing corporation. The value of a convertible bond depends upon the value of the underlying stock, and thus, it is a derivative security. An investor would like to buy such a bond because he can make money if the stock market rises. The stock price, and hence the bond value, will rise. If the stock market falls, he can still make money by earning interest on the convertible bond. Another derivative security is a forward contract. Suppose you have decided to buy an ounce of gold for investment purposes. The price of gold for immediate delivery is, say, $345 an ounce. You would like to hold this gold for a year and then sell it at the prevailing rates. One possibility is to pay $345 to a seller and get immediate physical possession of the gold, hold it for a year, and then sell it. If the price of gold a year from now is $370 an ounce, you have clearly made a profit of $25. That is not the only way to invest in gold. -
Options and the Bubble
Options and the Bubble ROBERT BATTALIO and PAUL SCHULTZ* ABSTRACT Many believe that a bubble existed in Internet stocks in the 1999 to 2000 period, and that short-sale restrictions prevented rational investors from driving Internet stock prices to reasonable levels. In the presence of such short-sale constraints, option and stock prices could decouple during a bubble. Using intraday options data from the peak of the Internet bubble, we find almost no evidence that synthetic stock prices diverged from actual stock prices. We also show that the general public could cheaply short synthetically using options. In summary, we find no evidence that short-sale restrictions affected Internet stock prices. *Both authors, Mendoza College of Business, University of Notre Dame. We thank Morgan Stanley & Co., Inc. for financial support. The views expressed herein are solely those of the authors and not those of any other person or entity including Morgan Stanley. We thank an anonymous firm for providing the option data used in our analysis. We gratefully acknowledge comments from seminar participants at the University of North Carolina, the University of Notre Dame, the 2005 American Finance Association meetings, the 2005 Morgan Stanley Equity Microstructure Conference, the 2005 Western Finance Association meetings, Marcus Brunnermeier, Shane Corwin, Tim Loughran, Stewart Mayhew, Allen Poteshman, Matthew Richardson, Robert Whitelaw, and an anonymous referee. Prices of Nasdaq-listed technology stocks rose dramatically in the late 1990s, peaked in March 2000, and then lost more than two-thirds of their value over the next two years. Many of the largest price run-ups and subsequent collapses were associated with Internet stocks.