Synthetic and Structured Assets

Organized along product lines, the book will analyze many of the original classes of structured assets, including mortgage- and asset-backed securities and strips, as well as the newest structured and synthetic instruments, including exchange-traded funds, credit derivative-based collateralized debt obligations, total return swaps, contingent convertibles, and insurance-linked securities.

Two introductory chapters will outline the scope of the market, key definitions, participant motivations/goals, economics of structuring and synthetic replication, and the central "building blocks" used in the creation of synthetic/structured assets (including on-balance sheet assets and liabilities, derivatives, shelf registration debt programs, private placements, trusts, and special purpose entities). Eight product chapters will then examine the main instruments of the marketplace: mortgage- and asset-backed securities, stripped/reconstituted government securities, collateralized debt obligations, structured notes, insurance-linked securities, exchange-traded funds, convertible bond variations, and derivatives/synthetic asset replication. Each product chapter will contain product descriptions, structural features (e.g., trading conventions, settlement), arbitrage/investment drivers, and various worked examples and diagrams that emphasize practical investment and risk applications; financial mathematics will be kept to a minimum. A concluding chapter will review the essential risk, legal, regulatory, and accounting features of synthetic and structured assets in the world's major markets.

Financial activities have been a part of the global economic framework for centuries. Lending, borrowing, speculating, investing, and hedging, for instance, have been employed for years by a broad range of institutions in order to achieve specific financial goals. With progress emerging over the past few years in derivatives valuation methods, technology, legal structuring, market liquidity, cross border capital flows, and financial creativity, a new class of increasingly customized financial assets has developed. It is now common for institutions, which once relied on basic capital-raising and investment instruments, to turn to these sophisticated assets to achieve their goals. Synthetic and Structured Assets is a new book that focuses on customized financial instruments created specifically to meet the risk and investment needs of market participants.  

The text explores the mechanics and applications of synthetic and structured assets – or assets that are created, decomposed or restructured in order to alter, replicate, or enhance cash flows to meet end-user requirements. Product coverage includes:

• Callable, Puttable and Stripped Securities

• Mortgage and Asset-Backed Securities

• Structured Notes and Loans

• Collateralized Debt Obligations

• Insurance-Linked Securities and Contingent Capital

• Convertible Bonds and Equity Hybrids

• Investment Funds

• Derivative Replication, Repackaging, and Structuring

The text also provides in-depth coverage of the financial building blocks used to create synthetic and structured assets, as well as the legal, risk, and financial control parameters that form a key part of the evaluation and management process.

Erik Banks is an independent risk consultant and financial author who has been active in the investment banking sector for 20 years. Erik has held senior risk management positions at Merrill Lynch, XL Capital, and Citibank in New York, Tokyo, London, and Hong Kong, and has written 20 books on derivatives, risk, emerging markets, and merchant banking, including the JohnWiley titles The Simple Rules of Risk, Exchange-Traded Derivatives, Alternative Risk Transfer, and Catastrophic Risk. He lives in Maine with his wife, Milena, and their horses and dogs.