لایب سان

Author(s): Fidelio Tata

Publisher: Springer International Publishing;Palgrave Macmillan, Year: 2020

ISBN: 9783030443405,9783030443412

xv Contents 1 Introduction 1 References 3 2 A Taxonomy of the Banking Business 5 2.1 Asset and Wealth Management 7 2.2 Corporate and Investment Banking 10 2.2.1 Investment Bank 11 2.2.2 Commercial Bank 13 2.2.3 Transaction Bank 14 2.3 Retail Banking 15 References 17 3 Fundamentals of the Banking Business 19 3.1 Global Market’s Ecosystem 19 3.1.1 Buy-Side vs. Sell-Side 19 3.1.2 Banks 21 3.1.3 Shadow Banks 23 3.1.4 Exchanges 24 3.1.5 Pension Funds 25 3.1.6 Insurance Companies 26 3.1.7 Mutual Funds 26 3.1.8 Index Funds 27 3.1.9 Hedge Funds 28 3.1.10 Sovereign Wealth Funds 31 3.1.11 Central Banks 32 3.2 Key Concepts of Financial Theory 35 3.2.1 Choice Under Uncertainty and Risk 36 3.2.2 The Efficient-Market Hypothesis 39 3.2.3 Arbitrage 41 3.2.4 Agency Theory 44 References 49 4 Sales 53 4.1 Anatomy of the Trading Floor 53 4.2 Role of Sales 56 4.2.1 Prospecting for New Clients vs. Managing Existing Relationships 57 4.2.2 Trade Execution 58 4.2.3 Iterative Trade Development 60 4.2.4 Providing Market Color 62 4.2.5 Sharing Traders’ Axes 63 4.2.6 Sharing Desk Research and Strategy Publications 64 4.2.7 Client Entertainment 65 4.2.8 Client Education 66 4.2.9 Seminars and Research Conferences 66 4.3 Agency Problems in Sales 67 4.4 Cognitive Biases 68 4.5 Case Study: Fannie Mae Callable Debt 69 4.5.1 Fannie Mae: Reducing Funding Cost 69 4.5.2 Investors Looking for Yield 70 4.5.3 Problem Matching Market Participants’ Interests 70 4.5.4 Matching Target Funding Level and Target Yield Level 71 4.5.5 Sales “Story” 73 4.5.6 Opportunities and Risks 73 4.6 Challenges Ahead 74 4.7 A Career in Sales (by Peter Joel) 76 References 78 5 Trading 81 5.1 Trading Basics 81 5.1.1 Market Maker vs. Market Taker 81 5.1.2 Stylized Example of Informed Order Flow 82 5.1.3 Order Flow Toxicity 83 5.1.4 First to Market 84 xvi Contents 5.1.5 Backtesting 84 5.2 Pricing 85 5.2.1 Market Price 85 5.2.2 Model Price 86 5.2.3 Physics Envy 86 5.2.4 P&L Decomp 87 5.3 Flow Trading 89 5.4 Proprietary Trading 91 5.5 Hedge Fund Trading 92 5.6 Leverage 94 5.7 Electronic Trading 97 5.8 Case Study: Trading in the US Treasury Market 99 5.9 Case Study: Impact of Regulatory Changes to the Repo Market 102 5.9.1 The Repo Market 102 5.9.2 Supplementary Leverage Ratio Regulation 104 5.9.3 Impact of SLR Regulation on Banks and the Repo Market 104 5.10 Useful Skills for a Career in Trading 105 5.11 A Career in Trading (by Fabrice Pilato) 106 References 109 6 Research 113 6.1 The Market for Investment Research 113 6.2 Providers of Research 114 6.2.1 Sell-Side Analysts 115 6.2.2 Buy-Side Analysts 116 6.2.3 Independent Research Providers 117 6.3 Value-Adding of Research 118 6.3.1 Buy/Sell/Hold Recommendation 118 6.3.2 Actionable Trading Opportunities 119 6.3.3 Thought-Provoking Thematic Analysis 120 6.3.4 Corporate Access 121 6.3.5 Analytical Research Platforms 121 6.3.6 Machine Learning, Artificial Intelligence and Alternative Data 122 6.3.7 Other Contributions of Research 124 6.4 Trade Ideas 125 6.4.1 Carry and Roll-Down Trades 125 6.4.2 Curve Trades 127 Contents xvii 6.4.3 Momentum Trades 128 6.4.4 Fair Value Model Trades 129 6.4.5 Volatility Trades 129 6.4.6 Technical Analysis 129 6.4.7 Central Bank Trades 130 6.4.8 Trades Related to Economic Releases 131 6.4.9 Conditional Trades 131 6.5 General Rules About Trade Ideas 132 6.6 Trade Idea Generation 134 6.7 Conflict of Interests 136 6.8 MiFID II 138 6.9 Challenges Ahead 139 6.10 A Career in Research (by Vincent Chaigneau) 140 References 145 7 Derivatives 147 7.1 Why Derivatives? 147 7.2 Developing a Derivative Mindset 148 7.3 Fundamentals of Derivative Products 152 7.4 Forwards 154 7.5 Futures 155 7.6 Swaps 157 7.6.1 Fixed-to-Floating Interest Rate Swap 158 7.6.2 Foreign Exchange Swap 160 7.6.3 Cross-Currency Swap 162 7.6.4 Other Types of Swaps 164 7.7 Options 164 7.7.1 Options Payout Profiles 165 7.7.2 In-the-Moneyness 167 7.7.3 Intrinsic Value vs. Time Value 168 7.7.4 Options Greeks 169 7.7.5 Intuition of Derivative Pricing 171 7.7.6 Binomial Options Pricing 174 7.7.7 Black–Scholes Options Pricing 177 7.7.8 Beyond Black–Scholes 179 7.7.9 Options Hedging 180 7.7.10 Volatility and Distribution Assumptions 184 7.7.11 Correlation and Correlation Assumptions 187 7.8 Remaining Humble in Derivative Space 189 References 194 xviii Contents 8 Exercises 197 8.1 Exercises for Chapter 2 (A Taxonomy of the Banking Business) 197 8.1.1 Section 2.2.1 197 8.1.2 Section 2.2.2 197 8.2 Exercises for Chapter 3 (Fundamentals of the Banking Business) 198 8.2.1 Section 3.1.1 198 8.2.2 Section 3.1.2 198 8.2.3 Section 3.1.3 198 8.2.4 Section 3.1.4 198 8.2.5 Section 3.1.5 198 8.2.6 Section 3.1.8 199 8.2.7 Section 3.1.11 199 8.2.8 Section 3.2.1 199 8.2.9 Section 3.2.2 200 8.2.10 Section 3.2.3 200 8.2.11 Section 3.2.4 200 8.3 Exercises for Chapter 4 (Sales) 201 8.3.1 Section 4.1 201 8.3.2 Section 4.2.1 201 8.3.3 Section 4.2.2 201 8.3.4 Section 4.2.3 201 8.3.5 Section 4.2.4 202 8.3.6 Section 4.2.5 202 8.3.7 Section 4.2.6 202 8.3.8 Section 4.2.7 202 8.3.9 Section 4.2.8 202 8.3.10 Section 4.3 202 8.3.11 Section 4.4 203 8.4 Exercises for Chapter 5 (Trading) 203 8.4.1 Section 5.1.1 203 8.4.2 Section 5.1.3 203 8.4.3 Section 5.1.4 204 8.4.4 Section 5.1.5 204 8.4.5 Sections 5.2.1 and 5.2.2 204 8.4.6 Section 5.2.4 205 8.4.7 Section 5.3 205 8.4.8 Section 5.4 205 8.4.9 Section 5.5 205 Contents xix 8.4.10 Section 5.6 205 8.4.11 Section 5.7 206 8.5 Exercises for Chapter 6 (Research) 206 8.5.1 Section 6.2.1 206 8.5.2 Section 6.3.1 206 8.5.3 Section 6.3.2 207 8.5.4 Section 6.3.6 207 8.5.5 Section 6.4.2 207 8.5.6 Section 6.5 207 8.5.7 Section 6.6 209 8.5.8 Section 6.7 209 8.6 Exercises for Chapter 7 (Derivatives) 210 8.6.1 Section 7.3 210 8.6.2 Section 7.4 210 8.6.3 Section 7.5 210 8.6.4 Section 7.6 211 8.6.5 Section 7.7 211 8.6.6 Section 7.7.4 211 8.6.7 Section 7.7.6 211 8.6.8 Section 7.7.9 211 8.6.9 Section 7.7.10 212 References 212 Index 215 xx Contents

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