Marshall_FM 9/27/00 7:18 AM Page iii

D ictionary of
Financial
Engineering

John F. Marshall, Ph.D.

Marshall, Tucker & Associates, LLC

John Wiley & Sons

New York ■ Chichester ■ Weinheim
Brisbane ■ Singapore ■ Toronto
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C ONTENTS

Preface xi

Dictionary of Financial Engineering Terminology 1

Appendices 193

Abbreviations/Acronyms for Security and Futures Exchanges 195

A. Fixed Income Analytics: Forward Rates, Spot Rates, 197
and Option Adjusted Spreads
(adopted from “Option Adjusted Spread Analysis”
Derivatives Risk Management Services, Warren, Gorham,
& Lamont, pp. 4D1-4D33)
B. From Portfolio Theory to Complex Constructs: 223
Financial Engineering Comes of Age
(Derivatives: Tax, Regulation, Finance, vol 1(1), September/
October 1995, pp. 39–41)
C. What are Swaps? A Look at Plain Vanilla Varieties 227
(Derivatives: Tax, Regulation, Finance, vol 1(3),
January/February 1996, pp. 128–130)
D. Creative Engineering with Interest Rate Swaps 233
(Derivatives: Tax, Regulation, Finance, vol 1(5), May/
June 1996, pp. 233–237)
E. Currency Swaps, Commodity Swaps, and Equity Swaps 241
(Derivatives: Tax, Regulation, Finance, vol 2(1), September/
October 1996, pp. 43-48)
F. Options 101: The Basics 251
(Derivatives: Tax, Regulation, Finance, vol 2(3), January/
February 1997, pp. 147–152)

ix
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x ■ Contents

G. Options Can Be Tailored to Hedge Single and 261

Multiple Exposure Periods
(Derivatives: Tax, Regulation, Finance, vol 2(5), May/
June 1997, pp. 260–266)
H. Exotic Options Are Not as Exotic as They Once Were 275
(Derivatives: Tax, Regulation, Finance, vol 3(1), September/
October 1997, pp. 38–41)
I. How Financial Engineers Create Structured Notes to 281
Satisfy Cash Flow Needs of Issuers and Investors
(Derivatives: Tax, Regulation, Finance, vol 3(2), January/
February 1998, pp. 106–111)