Introduction to financial market and financial securities

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研究生阶段最后一门课，Data-Driven Financial Model，老师是个犹太人，剑桥phd，课程使用Matlab。

计划这个系列用来做一些课后的整理复习。

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Overview:
　　Introduction of financial markets
　　Financial Securities
　　Primary and secondary markets
　　Trading
　　Margin

1 About Financial Marktes and Economy:
　　Capital flows: to companies with the best prospects
　　Consumption Timing: Use securities to store and transfer consumption
　　Allocation of Risk: Investors select securities consistent with taste for risk
　　Separation of Ownership and Management. Agency problems

1,1 The players:
　　Borrowers:债务人
　　Savers:债权人
　　Intermediaries: 金融中介是提供在金融市场中中介服务的个人，企业，或者机构，例如银行，券商等。金融中介通常有4个主要功能：1.设定价格和清算价格；2.提供流动性和及时性;3.沟通卖方和买方；4.保证和监控质量。
　　债务人是与债权人相对应的法律术语。如果甲方（可以是自然人、企业法人或政府等）有权要求乙方主张特定的服务或财产，则称甲方为债权人，称乙方为债务人。
　　　　一般情况下，债权人会基于债务人将向其偿付等价值的服务或财产的假定下而向乙方提供一定价值的财产或服务，而该假定一般是由合同支援的。比如甲方向乙方支付了货款购买乙方的产品，在乙方收到资金但尚未将产品交付甲方时，甲方为乙方的债权人，乙方为甲方的债务人

1,2 Three type of Financial Assets:
　　Fixed income or debt
　　Common stock or equity
　　Derivative securities

1,2,1 Fixed income:
　　Payments fixed or determined by a formula. E.g. mortgage loan, bank deposit.
　　Money market debt: short term, highly marketable, usually low credit risk
　　Capital market debt: long term bonds, can be safe or risky
　　Treasury notes and bonds{
　　　　Notes- maturities up to 10 years
　　　　Bonds- maturities from 10 to 30 years}
　　Semi-annual interest payments
　　Corporate Bonds(
　　　　Issued by private firms
　　　　Semi-annual interest payments
　　　　Subject to larger default risk than government securities
　　　　Options in corporate bonds: Callable/Convertible)
　　Mortgage-Backed Securities(
　　　　Proportional ownership of a mortgage pool OR a specified obligation secured by a pool
　　　　Produced by securitizing mortgages
　　　　Mortgage-backed securities are called 'pass throughts' because the cash flows produced by homeowners paying off mortgages are passed through to investors
　　　　Payments are not-so-fixed)

1,2,2 Common stock and equity
　　Common Stock is equity or ownership in a corporation(
　　　　Payments to stockholders are not fixed, but depend on the success of the firm. E.g. Apple common share
　　　　Residual claim
　　　　Limited Liability)
　　Preferred stock: Perpetuity(
　　　　Fixed dividends
　　　　Priority over common)

1,2,2,1 Stock Market Indexes - Dow Jones Industrial Average 道琼斯指数
　　Include 30 large blue-chip corporations
　　Computed since 1896
　　Price-weighted average
1,2,2,2 Stock Market Indexes - Standard & Poor's Indexes 标准普尔指数
　　S&P 500(
　　　　Boradly baseed index of 500 firms
　　　　Martet-value-weighted index)
1,2,2,3 Stock Market Indexes - NASDAQ 纳斯达克指数

1,2,2,4 Investors can base their portfolios on an index:
　　Buy an index mutual fund
　　Buy exchange traded funds(ETFs)

1,2,3 Dervaties
　　Value derives from prices of other securities, such as stocks and bonds
　　Used to transfer risk. (E.g. option to secure oil prices or dollar exchange rate)
　　Option: Right, but not obligation, to buy or sell
　　Futures Contract: Obliged to make or take delivery

2,1 How Firms Issue Securities
　　Primary Market:
　　　　Firms issue new securities,
　　　　Investors get new securities, firm gets funding
　　Secondary Market
　　　　Investors trae previously issued securities among themselves

2,2 Initial public Offering(IPO)
　　Road shows to publicize new offering
　　Book building to determine demand for the new issue
　　Degree of investor interest in the new offering probides valuable pricing information

2,3 Trading in secondary market
　　Bid Price
　　　　Bid prices are offers to buy. In dealer markets, the bid price is the price the dealer is willing to buy. Investors "sell to the bid"
　　　　Bid-Ask spread is the profit for making a market in a security
　　Ask Peiw
　　　　Ask prices represent offers to sell. In dealer markets, the asked price is the price at which the dealer is willling to sell. Investors pay the asked price to buy the security.

3,1 Types of orders
　　Market Order: Executed immediately Trader receives current market price
　　Price-contingent Order: Traders specify buying or selling price.
　　A large order may be filled at multiple prices

3,2 Trading Costs:
　　Brokerage Commision: fee paid to broker for making the transaction.
　　　　Explicit cost of trading
　　　　Full Service vs. Discount brokerage
　　Spread: Difference between the bid and asked prices
　　　　Implicit cost of trading

3,3 Shor Sales 
　　Purpose: to profit from a decline in the price of a stock or security
　　Machanics:
　　　　Borrow stock through a dealer
　　　　Sell it
　　　　Closing out the position: buy the stock and return to the party from which it was borrowed

4,1 Overview of financial markets:
　　　Financial assets{
　　　　Direct investing{
　　　　　　Money market instruments
　　　　　　Capital market instruments{
　　　　　　　　Fixed income instruments
　　　　　　　　Equity instruments}
　　　　　　Derivative instruments}
　　　　Indirect investing(e.g. mutual funds)}

4,2 Rates of returns versus time for major security types

4,3 Buying on Margin
　　Borrowing part of the total purchase price of a position using a loan from a broker
　　Investor contributes the remaining portion
　　Margin refers to the percentage or amount contributed by the investor
　　Your profit when the stock apprciates

4,4 Example
　　Initial Conditions:
　　　　Share price $100
　　　　60%　　　　　 Initial Margein
　　　　40%　　　　　 Maintenance Margin
　　　　100　　　　　 Shares Purchased
　　　　Initial Position:
　　　　　　Stock $10,000　　Borrowed $4,000
　　　　　　　　　　　　　　　　Equity   $6,000
　　Maintenance Margin
　　　　Stock price falls to $70 per share
　　　　New Position:
　　　　　　Stock $7,000　　Borrowed　$4,000
　　　　　　　　　　　　　　　Equity　　 $3,000
　　　　Margin% = $3,000/$7,000 = 43%
　　How far can the stock price fall before a margin call?
　　　　Let maintenance margin = 30%
　　　　Equity = 100P - $4000
　　　　Percentage margin = (100P - $4000)/100P
　　　　　　　　　　　　　　 = 0,30
　　　　Solve to find:
　　　　　　P = 57,14