Practical Methods of Financial Engineering and Risk Management

CHAPTER 1

Financial Instruments

Traditionally, Wall Street has categorized financial instruments using the following classification:

• Fixed income
• Credit
• Emerging markets
• Mortgage-backed securities (MBS)
• Equities
• Commodities
• Foreign exchange (FX)

These categories are often referred to as asset classes. Fixed-income assets include all sorts of high-quality government bonds and interest-rate products from the G7 countries. The main source of risk here is interest-rate uncertainty. Bonds issued from emerging market countries such as the BRIC (Brazil, Russia, India, China) counties fall under emerging markets. Corporate bonds are classified under ...