論清華大學經管學院的金融工程(英文版)

INTRODUCTIONTOFINANCIALENGINEERING?FredSongSeptember20011IntroductoryWhatisFinance?WhatisFinancialEngineering?What’stheroleofFinancialEngineeringinNewEconomy?

Neweconomy

Financialengineeringande-commerce2WhatisFinance?Money&Banking—MonetaryEconomicsInternationalFinance—

InternationalEconomics3CorporateFinanceCapitalMarket(Investments)FinancialEconomicsMultinationalCorporateFinanceInternationalFinancialMarketFinancial

Engineering4WhatisFinancialEngineering?Generalizing:FinancialEngineeringinvolvesthedesign,thedevelopment,andtheimplementationofinnovativefinancialinstrumentsandprocesses,andtheformulationofcreativesolutionstoproblemsinfinance.Specializing:FinancialEngineeringisriskmanagementviacreativestructuraltools.5FINANCEI.T.ENGINEERINGF.E.6CHAPTERONE:MMTheoryandNoArbitrageMMTheory

TwomeasurementsofvalueAccounting:bookvalue—historiccostFinance:marketvalue—netpresentvalue7Assets=Liabilities+EquityAccountingEquality:duelentitysystemBookvaluemeasurementFunduseFundsourceFinanceEquality:Funduse=FundsourceMarketvaluemeasurement8

CorporateFinanceAssetsLiabilitiesandEquity

Asset1

Asset2Liabilities

Asset3..Equity.

AssetnTotalAssetsTotalLiabilitiesandEquityAccounting:Yes!Finance:No!CapitalMarketRealEconomyNPVFirmValue+NPV9LiabilitiesValueEquityValueLiabilitiesValueAssetsValueCapitalStructureFinancialleverage:orHasachangeoffinancialleverageanyimpactonthefirmvalue?10M&MTheoryM&Massumptions:FrictionlessassumptionsNoincometaxesNotransactioncostsNoinformationasymmetryNocosttoresolveinterestconflictsamongstakeholdersAllliabilitiesarerisk-free11Notes:Amini-caseTwocompaniesEBITCapitalstructureFirmvalue$10millionp.abonds:$40million,8%shares:600,000A’sshareprice:$100pershareexpectedreturn:10%1millionshares$100millionB?AB’sbond:risk-freethesharenumberissupposedshareexpectedreturn:?12(Risk-free)NoPositionImmediateCashFlowCashFlowintheFutureReplicationofA’sStockUsingB’sStockandBondsB’sTotalPayments=B’sNetEarnings+InterestPayments=(EBIT-$3.2million)+$3.2million=EBITSupposepriceofB’sstock=$90pershareShortsell1%A’ssharesat$100pershareBuy1%B’ssharesat$90pershareBuy1%B’sbonds+$1,000,000

1%ofEBIT

$540,0001%(EBIT$3,200,000)

$400,0001%

$3,200,000NetCashFlow$60,0000ArbitragePriceofB’sstock=$100pershare13M&MProposition1Proposition1:UnderM&MAssumption,i.e.,inthefrictionlessenvironment,thetotalmarketvalueofafirmisindependentofitscapital

structure.Thinkofthefirmasagiganticpizza,dividedintoquarters.Ifnow,youcuteachquarterinhalfintoeights,theM&Mpropositionsaysthatyouwillhavemorepieces,butnotmore

pizza.

—MertonMiler14ProbabilityDistributionofEBITandEPSfortheTwoCompaniesStateoftheEconomyEBITCompanyACompanyBEPSNetEPS(1millionshares)Earnings(600,000shares)

Badbusiness$5million$5$1.8million$3.00Normalbusiness10106.811.33Goodbusiness151511.819.67Mean10106.811.33Standarddeviation46.81Beta1.01.01.67NOTE:Eachstateoftheeconomyisequallylikely.15Thecostofcapitaldependsonitsuseandnotonitssource.Proposition!16WeightedAverageCostofCapitalCostofcapitalofthefirmwithoutliabilityRiskpremiumofWACCFinancialleverageM&MProposition2:ThecostofcapitalofafirmequalsthecostofcapitalofthefirmwithoutliabilityandtheriskpremiumofWACCmultipliedbyfinancialleverage.17Alltransactionsinfinancialmarketsarezero–NPVtransactionactivities.Proposition!18ImplicationofM&MTheoryFrictionlessenvironmentdoesnotexistintherealworld.TaxesTransactioncostsInformationasymmetryCostsresolvinginterestconflictLiabilitiesarerisk-bearing19—TaxShieldCompanyA:Taxrate:T=33%CompanyACompanyBClaimantCreditorsShareholdersGovernmentTaxAuthority

TotalFirmValuebeforeTaxation$100million$100million067million33millionCompanyB:(1–T)(EBIT–Interests)+Interests=(1-T)EBIT+TInterests40.0million40.2million19.8million$13.2million20—WACCwithTaxesOtherM&MassumptionsholdHasachangeoffinancialleverageanyimpactonthefirmvalue?Answer:Yes!Discountrateforcashflowofthefirm21—StockPriceShareNumberTotalEquitySharePriceCompanyA:1million67.0million$67CompanyB:600,00040.2million$67?IfCompanyAweretoannounceanissueof$40milliondebttobeusedtorepurchaseandretirecommonstockA’scapitalstructure=B’scapitalstructureMarketreaction:priceofA’ssharewouldgouptoreflectthe$13.2milliontaxshield:$(67.0+13.2)million/1million=$80.2pershare.Whereisthebenefitofthetaxshield?22StatePricesu=1.07d=0.98Risk-freesecurityRisk-freeinterestrateBondABondB23—BasicSecuritiesBasicSecurity1BasicSecurity2=

?=

?Portfolio{BasicSecurity1,BasicSecurity2}replicatingBondA=NoArbitrage24Replicatingrisk–freesecurityPortfolio{BasicSecurity1,BasicSecurity2}replicating=LetStatePrices25ReplicatingBondAandBondBNoArbitrageQuestions?Dothereexistsuchkindbasicsecuritiesintherealworld?Arethereenoughbasicsecuritiesthatcanbeusedtoreplicateallthepayoffofsecuritiesinthemarket?Answers:Findsomeequivalentinstrumentsinsteadofbasicsecurities.Itinvolvesinmarketcompleteness.26ReplicationviaequivalentinstrumentsPortfolio{BondA,marketvaluerisk-freesecurity}replicatingBondB27MarketCompletenessWheneverthenumberofdifferentinstrumentsusedtoreplicatesecuritiesequalsthenumberofstatessothatwecanattainanypayoffofsecuritiesinfuture,insuchacircumstance,themarketisacompleteone.Otherwise,themarketisincomplete.Completenessisacoreconceptoffinancetheories!28SummaryofChapterOneNoArbitrageEquilibriumReplicationMethodologyStatePricesTechnology29CHAPTERTWO:TimeValueofMoneyandTermStructureofInterest

—DiscountedCashFlowFormulaYes!istheexpectedrateofreturn,i.e.,themeanofthediscountratesfordifferenttermsLetNo!isthediscountratethatcannotbeusedforsolongperiod?30

—DeterminationofInterest

Capitalproductionability——themorethecapital’sexpectedreturn,thehighertheinterestratesandviceversa.

Uncertaintyofcapitalproductionability——themoretheuncertainty,thehighertheriskpremiumrequiredandthehighertheinterestratesandviceversa.

Timepreferenceofconsumption——thestrongerpreferencetocurrentconsumption,thehighertheriskpremiumrequiredandthehighertheinterestratesandviceversa.

Riskaversion——themoretheriskaversion,thehighertheriskpremiumrequiredandthelowertherisk-freeinterestrates.

Fourbasicfactors31

TheBenchmarkofInterest—YieldtoMaturity(YTM)

YTMvarieswithdifferentfinancialinstruments,becausetheexposureoffinancialinstrumentsarequitedifferentandtherequiredriskpremiumsdifferfromeachother.Risk-freeinterestvarieswithterms.It’scalledthetermstructureofinterests.—Risk-free