Financial Engineering
Principles
A Unified Theory for Financial
Product Analysis and Valuation
Perry H. Beaumont, PhD

Copyright © 2004 by Perry H. Beaumont, Ph.D. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data
Beaumont, Perry H., 1961-
Financial engineering principles: a unified theory for financial
product analysis and valuation / Perry H. Beaumont.
p. cm. — (Wiley finance series)
Published simultaneously in Canada.
ISBN 0-471-46358-2 (cloth)
1. Financial engineering. I. Title. II. Series.
HG176.7.B42 2003
658.15’224—dc21 2003011338
Printed in the United States of America.
10 9 8 7 6 5 4 3 2 1

Contents

FOREWORD IX
PREFACE XI
INTRODUCTION XVII
PART ONE
Products, Cash Flows, and Credits 1
CHAPTER 1
Products 3
CHAPTER 2
Cash Flows 15
CHAPTER 3
Credit 73
PART TWO
Financial Engineering, Risk Management, and Market Environment 111
CHAPTER 4
Financial Engineering 113
CHAPTER 5
Risk Management 171
CHAPTER 6
Market Environment 241
INDEX 271