Cases in Financial Engineering: Duane Seppi and Chris Telmer

Cases in Financial Engineering
Duane Seppi and Chris Telmer
Tepper School of Business
Carnegie Mellon University

Information for the 2007 Competition

The cases available here were developed by Duane Seppi and Chris Telmer, in conjunction with specialists from Lehman Brothers and Merrill Lynch. They were used in the Financial Engineering Case Competition, an annual event organized by The Tepper School of Business at Carnegie Mellon University and held at the offices of Lehman Brothers in New York City.

Financial engineering is the design of a structured product which solves an business problem. Each case is built around such a problem. The cases also emphasize quantitative valuation using interest rate and option pricing models.

The cases are available free of charge, but may be used for educational purposes only.

Xinhua Development Company: Foreign Currency Derivatives (2006)
- Since the 1990's, a Chinese infrastructure developer has been obtaining financing using Japanese development loans denominated in JPY. They'd like to swap into CNY, but can't do so directly because of institutional and regulatory constraints. What about USD?
Winterland Asset Management: Asset-Backed Securitzation of Subprime Home Equity Loans (2005)
- A hedge fund wants to invest in high-yielding credit derivatives but wants to hedge the risk of a collapse in house-prices.
Rauxon Energy Co.: Credit Derivatives and FOREX (2004)
- Hedging counterparty credit risk in a forward FOREX contract
Millennium Bond Fund: Corporate Bond Portfolios and Credit Risk (2003)
- A high-yield fixed-income money manager seeks exotic variants on the first-to-default swap. Uses copula functions.
Highcar Ventures: Equity Derivatives (2002)
- A venture capitalist seeks to reduce equity positions in their partner companies in a tax efficient manner which is consistent with their strategic objectives.
Tillsonburgh Capital Inc.: Asset-Backed Securitization (2000)
- An equipment leasing company seeks to de-lever their balance sheet.
Semering Properties Corporation: Credit Derivatives (1999)
- An owner of commercial real estate tries to insure itself against the financial distress of its tenants.
Chartered Bank Corporation: Mortgage-Backed Securities (1998)
- An offshore bank tries to enhance spread without increasing credit risk by trading in CMO's.
Aigner Mortgage Services: Mortgage-Backed Securities (1997)
- A mortgage servicing bank tries to protect its servicing revenue against a drop in interest rates.