What is alphabet soup?

"Alphabet soup" is a thick, sticky and slippery food. Speaking of the front, it will make people look upside down. I'm sure I'll burp after eating. Nowadays, this word is vividly used by Joseph Yam, the president of Hong Kong Monetary Authority, as a metaphor for a series of structured financial products named after letters, such as CDO, CLO, SIV, ABCP and CDS.

In the rapidly changing international financial market, financial players are constantly innovating, and such structured financial products called "Xintang" have entered people's field of vision one after another.

"When I was a child, I thought alphabet soup was cheap and delicious. I've always wanted to add more dishes after eating. This is a bit like investors being attracted by well-rated financial instruments and investing for high returns. " This metaphor of Joseph Yam sums up the general situation and characteristics of this complex financial product in easy-to-understand language.

However, in recent years, the huge losses of Socié té Gé né rale and the profound impact of the American subprime mortgage crisis on the global economy have cast a shadow over the development of financial innovation and attracted the attention of many people in the industry. Especially in the process of American financial turmoil sweeping the world, structured financial products that have been packaged for many times and obtained excellent ratings have become the "culprit" of the rapid spread of risks around the world. This also makes financial institutions and many investors begin to be confused about the "letter soup".

However, the financial market is always developing in a spiral way. We should get rid of side branches and accumulate experience to make the development of technology and innovation more solid and effective, and we should not give up food because of choking.

As a tool for companies to seek comprehensive financing and risk management in structured finance and insurance markets, ART (Alternative Risk Transfer) combines structured finance and structured insurance.

Structured finance uses non-traditional financing methods to raise funds, and changes the risk characteristics of the company in the process. Structured insurance uses non-traditional risk financing and risk transfer methods to manage risks, which will also affect the company's capital structure and/or weighted average cost of capital.

Art is like alchemy, turning debt into insurance, stripping debt from the balance sheet, or increasing profits to make up for the losses already caused. For example, using the capital market mechanism to carry out risk securitization can, on the one hand, improve the underwriting ability of insurance companies, expand the scope of insurance business, and realize the risk bearing, transfer and dispersion of catastrophe risks; On the other hand, it also provides products that meet certain risk-return characteristics for the capital market, enriches market varieties, deepens market functions, and becomes an international advanced risk management operation mode. Art has developed rapidly in the past 10 years. For example, according to the statistics of Swiss Re, the insurance-related securities issued in 1998 were 167 billion US dollars, and the catastrophe bonds were 890 million US dollars. By August 2006, the scale of insurance-related securities reached 22.75 billion US dollars, and the total amount of catastrophe bonds issued but not yet due rose to 7.865438 billion US dollars, increasing by/kloc-0.4 times and 9 times respectively in eight years. Although art is common in western developed countries, it is still in the early stage of development and growth, and it is a new thing in China. How to make better use of art in China deserves further study.

The Art of Managing Capital and Risk-Structured Finance and Insurance by Professor culp is one of the monographs that comprehensively introduce art in the world. From the superficial to the profound, from theory to practice, this book comprehensively and systematically expounds the reasons for using artistic products, the categories of main artistic products and their operating mechanisms. At the same time, this book has formed its own distinctive characteristics on the close combination of theory and practice. Many chapters collect and analyze a large number of examples. The last part also lists a series of views and opinions of risk management professionals on art-related issues, which provides sufficient information for readers to thoroughly understand the principle and practical operation of art products.