Financial Innovation: Theories, Models and Regulation

by G. V. Satya Sekhar (Gitam University, India)

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Financial innovation is a regular feature of the global financial system. Financial innovation results in greater economic efficiency over time. In the process of creating a new financial product, besides basic theory of financial management, a financial engineer needs to acquire knowledge of optimization and financial modeling techniques. Modern financial innovation is underpinned by a rich literature including the seminal studies by Levich (1985), Smith, Smithson, and Wilford (1990), Verghese (1990), Merton (1992), Levine (1997), John D Finnerty (2002), Tufano (2003) and Draghi (2008), among many others. This book corresponds to the need to provide an integrated study on financial innovation and the economic regulatory mechanism. A key part of financial innovation covered in the book is the process of creating innovative financial securities and derivative pricing that offers new pay-offs to investors. The book also covers a selection of empirical studies corroborating financial innovation theories. It also exposes myths surrounding performance evaluation models.
This book is presented in six chapters. The first chapter outlines important considerations on the application of financial innovation theories. The second chapter presents the theories that underpin financial innovation practice. The third chapter focuses on use of technology for financial modeling. The fourth chapter identifies the relationship between financial innovation and the wider economic system. The fifth chapter discusses the place of financial innovation in the global financial system. The sixth and final chapter presents a comparative analysis of India and the United States.

CONTENTS

CHAPTER-1: FIRST STEP TO INNOVATION
1.1. Introduction
1.2. Need for Financial Innovation
1.3. Review of Literature
1.4. Types of Innovation
1.5. The Tools of Financial Innovation
1.6. Factors contributing to the growth of financial engineering
1.7. Pioneers of Finance Theory
1.8. Summary

CHAPTER-2 THEORERMS AND THEORIES OF FINANCIAL INNOVATION
2.0. Introduction
2.1. Modigilani Miller Theorem
2.2. Markowitz Theorem
2.3. Black Scholes Merton’s Option Pricing Theorem
2.4. Garman and Kohlhagen Theorem
2.5. Ross Theory
2.6. Wuyangru Theory
2.7. Irving Fisher’s theory
2.8. Scalar’s Theorem
2.9. Models and Mechanism of Financial Innovation
Appendix- Basic Mathematical Tools for Financial Innovation

CHAPTER -3: FINANCIAL MODELLING AND APPLICATON OF SOFTWARE PACKAGES
Structure
3.1. Financial Modeling
3.2. Breaking Down 'Financial Modeling'
3.3. Users of Financial Models
3.4. Applications of Financial Modeling
3.5. Financial Modelling Status
3.6. Wolfram Solutions
3.7. Financial Product Mark Up Language (FPML)
3.8. Summary

CHAPTER- 4: THE GLOBAL FINANCIAL SYSTEM
4.1. Introduction
4.2. Recent Changes in global financial markets
4.3. Financial Management and domestic management
4.4. Emerging challenges in India
4.5. Evolution of International financial avenues
4.6. Domestic and Offshore Market
4.7. International Financing Decision
4.8. International Business Methods
4.9. IMF role in shaping global economy
4.10. Country Risk Assessment
4.11. Summary

CHAPTER- 5: FINANCIAL INNOVATION AND ECONOMIC SYSTEM INTERLINKS AND GAP ANALYSIS
5.0. Introduction
5.1. Financial Innovation
5.2. Definitions
5.3. Motivational factors
5.4. Need for financial innovation
5.5. Financial System
5.6. Economic instability and financial crisis
5.7. Securitization and innovation
5.8. Reforms in financial sector
5.9. Indian financial system pre-reforms phase
5.10. Financial Sector Reforms in India
5.11. Financial legislative structure
5.12. Summary

CHAPTER-6: FINANCIAL REGULATROY MECHANISM –INDIA AND THE UNITED STATES
6.1. Introduction
6.2. Nationalization of Financial Institutions in India
6.2.1. Starting of Unit Trust of India
6.2.2. Establishment of Development Banks
6.2.3. Institution for Financing Agriculture
6.2.4. Institution for Foreign Trade
6.2.5. Institution for Housing Finance
6.2.6. Stock Holding Corporation of India Ltd
6.2.7. Mutual Fund Industry
6.2.8. Venture Capital Institutions
6.2.9. Credit Rating Agencies
6.2.10. Multiplicity of Financial instruments
6.2.11. Legislative Support
6.3. SEBI-Market Regulator
6.3.1. SEBI- Historical Background
6.4. Regulation of the Indian securities market
6.5. Guidelines Relating to Initial Public Offers in India
6.6. Promoter’s contribution In India
6.7. Eligibility Norms for Promoter’s contribution in India
6.8. Lock-in Requirements in India
2.9. Prospectus Requirements of companies in India
6.10. Powers of the SEBI
6.11. Global Depository Receipts(GDR) / American Deposit Receipts (ADR) / Foreign Currency Convertible Bonds (FCCB)
6.12. Financial Regulatory Mechanism in the United States
6.13. Summary

Dr. G. V. Satya Sekhar (M.Com, MBA, M.Phil, Ph.D, Associate Professor, Centre for Distance Learning, GITAM University, Visakhapatnam, India) has 20 years of teaching and research experience. He has published 35 articles in various national and international journals as well as seven books: 1. Management Information Systems, 2. Managerial Economics 3. Business Policy and Strategic Management, 4. Performance Appraisal of Indian Mutual Funds, 5. Strategic Financial Management, 6. The Indian Mutual Fund Industry and 7. The Management of Mutual Funds.

"This book is quite informative to the researchers and analysts in the area of finance. It gives a broad idea on genesis, progress and depth of research conducted in financial innovation, theories, models and regulations."

Dr. MSV Prasad,
Head- Dept of Finance, GITAM University, India

Bibliographic Information

Book Title
Financial Innovation: Theories, Models and Regulation
ISBN
978-1-62273-317-0
Edition
1st
Number of pages
154
Physical size
236mmx160mm
Publication date
January 2018
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