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Financial Engineering: The Evolution of a Profession by Cara M. Marshall, Tanya Beder

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Chapter 17

Case Studies Introduction

Penny Cagan

Algorithmics/Fitch Group

INTRODUCTION

This part of this book, which consists of this short introductory chapter and the next five chapters, examines major cases involving some form of operational failure. While success is always preferable to failure, it is often easier to learn important lessons from an examination of failure than from an examination of success. In the following chapters, we will look at a total of eleven cases that have been logically grouped based on some commonality. Specifically, we will look at mortgage case studies, derivatives case studies, fixed income case studies, funds case studies, and credit derivatives cases studies.

At the core of these case studies is the concept of fiduciary duty. Financial institutions are obligated to put client interests above their own. This holds true in both the retail and the institutional sectors and includes the selling of mortgages; providing advice to mutual, pension, and government funds; and executing trades on behalf of others. There is no other industry, with the exception of health care, that is obligated to put a client's interests above its own. For example, when a consumer buys a computer from a computer company, there is no obligation to sell “the best computer at the best price” in the same way that a brokerage is obligated to “execute the best trade at the best price.” It is, of course, good business practice on the part of the computer manufacturer to provide ...

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