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The Complete Guide to Capital Markets forQuantitative Professionals

RK

January 2, 2015

1 Financial Markets

2 Market Participants

3 Financial Firms and their People

4 Markets and the Economy

5 The UNITED STATE Treasury market

6 Equity Markets

7 Financial Futures Market

8 Interest-Rate Swaps

9 Options Markets10 Mortgage and also Agencies11 Credit Markets12 Reference Data13 Financial Analytics and Modeling14 Market Data15 Trading Systems16 Risk Management17 Research & Strategy

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Financial Markets

1 Financial Markets

2 Market Participants

3 Financial Firms and also their People

4 Markets and also the Economy

5 The UNITED STATE Treasury market

6 Equity Markets

7 Financial Futures Market

8 Interest-Rate Swaps

9 Options Markets10 Mortgage and also Agencies11 Crmodify Markets12 Reference Data13 Financial Analytics and also Modeling14 Market Data15 Trading Systems16 Risk Management17 Research & Strategy

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Financial Markets

History of Markets

I There has constantly been a need for, raising funding for one set of peopleand a need for, investing capital for an additional set of civilization.

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I Debt and Equity have actually served as a means to relocate money from thosewho have actually it to those that desire to usage it.

I The principle of debt predates recorded history. Earliest recorded laws- Hammurabi dating about 1800 BC.

I In primitive Rome, the govt outsourced jobs such as taxation collection tosemi exclusive entities that increased their operating capital by sellingshares to the public.

I The roots of modern-day capital industries are in the medieval trade fairsthat began to show up everywhere Western Europe in eleventh century ADVERTISEMENT.

I Govt of Venetian Republic imposed so-dubbed forced loans on its moreinfluential citizens.

I Dutch govt issuance of Perpetual annuity.I By late nineteenth century, investors choices had actually shifted from

perpetual bonds towards bonds wbelow principal was changed.RK Guide to Capital Markets for Quants January 2, 2015 4 / 107

Financial Markets

Triby means of..

Coupons

Why are interest payment referred to as coupon payments ?

Since coupons were clipped on to the bond

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Financial Markets

History of Markets

I Dutch East India companys the majority of important financial innovation ofthe last 500 years : equity finance

I Money Markets : Markus Goldguy, a Germale immiapprove mademoney by selling handcreated discount bills. Founded Goldman Sachs

I FX sectors boorn in the late Center Ages in the develop of bill ofexchange

I Commodity futures

I Index Options, Stock alternatives, Commodity choices, FX options

I Interest price futures

I Interest price swaps

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Market Participants

1 Financial Markets

2 Market Participants

3 Financial Firms and also their People

4 Markets and also the Economy

5 The U.S. Treasury market

6 Equity Markets

7 Financial Futures Market

8 Interest-Rate Swaps

9 Options Markets10 Mortgage and also Agencies11 Credit Markets12 Reference Data13 Financial Analytics and Modeling14 Market Data15 Trading Systems16 Risk Management17 Research & Strategy

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Market Participants

Organization of major financial markets

Securities circulation downward on this chart, from issuers with theinvestment bankers to the end-user investors. Money flows the other way.

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Market Participants

Organization of second financial markets

The investors as buy-side carriers, can trader via dealer firms or onextransforms via broker intermediaries

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Market Participants

The Structure of Financial Markets

I offer side entities (favor used automobile dealers)I almost all IBanks also act as industry makers in those securities that

they aid in bringing in to the primary industry.

I buy side - shared funds, pension funds, hedge fundsI dealers - make a living by equivalent buyers via sellersI interdealer brokersI retail brokerI prime brokerI specialist or floor tradersI Not lengthy earlier, messengers were sent throughout to supply security

certificates and checks for payments

I Birth of Depository Trust Company(custodian) who took charge ofpreserving securities

I Clearing Services (Netting)

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Market Participants

What brings in money ?

I Investment banking fees

I Asset monitoring fees

I Brokerage commissions and exchange fees for executing otherpeoples trades

I Market-making from providing liquidity to other people

I Proprietary trading from successful investment of ones own capital

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Financial Firms and also their People

1 Financial Markets

2 Market Participants

3 Financial Firms and also their People

4 Markets and also the Economy

5 The UNITED STATE Treasury market

6 Equity Markets

7 Financial Futures Market

8 Interest-Rate Swaps

9 Options Markets10 Mortgage and Agencies11 Crmodify Markets12 Reference Data13 Financial Analytics and also Modeling14 Market Data15 Trading Systems16 Risk Management17 Research & Strategy

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Financial Firms and also their People

Internal company of a broker-dealer

I firmwide divisions: Many kind of nonrevenue-producing units, such ascompliance and innovation are designed to work through all divisions.

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Financial Firms and also their People

Organization of a trading division

I Each trading desk has actually about 5-25 traders depending on the size ofthe book

I Trading desk is prefer a mini-solar systemI traders at the centerI following layer are assistantsI next layer are salespeopleI next layer are quants

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Financial Firms and their People

Use of modern technology on Wall surface Street

I 1960s - initially mainstructure computers were installed

I 1970s- some terminals connected to firms mainframes (traders couldrun easy computing jobs)

I mid-1980s - Personal computers

I First batch of quants were hired about mid 1980s

I 1990s - quants were separated in to pure quants and softwaredevelopers

I By late 1990s, the allure of pure quants started to dim as eincredibly firmwas pretty much making use of the very same models

I Birth of inhome trading systems. Main chauffeurs wereI Market data platformsI InternetI Quantitative threat management( marked to market valuation)

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Financial Firms and also their People

Other players

I Asset Management firms

I Hedge funds

I Exchanges

I Interdealer brokers

I Financial Software providers - Bloomberg and also Reuters

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Financial Firms and their People

Wall surface Street Jobs for Technical People

I Salesworld who are currently significantly able to analyze historical datain order to create profession ideas

I traders in dealer banks

I quant traders

I desk quants

I sales research

I front-office technology

I middleware

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Markets and the Economy

1 Financial Markets

2 Market Participants

3 Financial Firms and also their People

4 Markets and also the Economy

5 The U.S. Treasury market

6 Equity Markets

7 Financial Futures Market

8 Interest-Rate Swaps

9 Options Markets10 Mortgage and also Agencies11 Crmodify Markets12 Reference Data13 Financial Analytics and Modeling14 Market Data15 Trading Systems16 Risk Management17 Research & Strategy

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Markets and the Economy

Technical civilization vs Traders

Analogy

The technical people are prefer vehicle mechanics, that understand exactly how the vehicle is puttogether and concern about maintaining it in excellent running order, while thetraders are prefer drivers, that know how to run the vehicle, however mostly focukid figuring out where they desire to go.

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Markets and also the Economy

Role of Central Banks

I Prior to Federal Reserve, significant financial institutions got together to take care of bankruns

I Panic of 1907 was as well massive to manage for the biggies and also for the firsttime Treasury intervened

I Outcome of 1907 - Federal Reserve System was born - lender of lastresort

I Banks have a reserve account at Fed wright here they store a requiredaverage of the two-week average of checking account deposits. Theseare dubbed fed funds

I Fed funds price is not straight collection by Fed.I Many visible feature of Fed is the conduct of monetary policyI Fed impacts the amount of money in the system using open up market