[eBook Code] Fixed Income Markets (eBook Code, 2nd)

Foreword xiii

Preface xvii

About the Authors xix

PART ONE Introduction to Bonds 1

CHAPTER 1 The Bond Instrument 3

CHAPTER 2 Bond Instruments and Interest-Rate Risk 43

Appendix 2.1 Formal Derivation of Modifi ed-Duration Measure 59

Appendix 2.2 Measuring Convexity 59

Appendix 2.3 Taylor Expansion of the Price/Yield Function 61

CHAPTER 3 Bond Pricing, Spot, and Forward Rates 65

Appendix 3.1 The Integral 83

Appendix 3.2 The Derivation of the Bond Price Equation in Continuous Time 85

CHAPTER 4 Interest-Rate Modelling 89

Appendix 4.1 Geometric Brownian Motion 101

CHAPTER 5 Fitting the Yield Curve 105

Appendix 5.1 Linear Regression: Ordinary Least Squares 124

Appendix 5.2 Regression Splines 127

PART TWO Selected Market Instruments 133

CHAPTER 6 The Money Markets 135

Appendix 6.1 179

CHAPTER 7 Hybrid Securities and Structured Securities 181

CHAPTER 8 Bonds with Embedded Options and Option-Adjusted Spread Analysis 205

Appendix 8.1 Calculating Interest Rate Paths Using Microsoft Excel 232

CHAPTER 9 Infl ation-Indexed Bonds and Derivatives 235

Appendix 9.1 Current Issuers of Public-Sector Indexed Securities 256

Appendix 9.2 U.S. Treasury Infl ation-Indexed Securities (TIPS) 257

CHAPTER 10 Introduction to Securitisation and Asset-Backed Securities 261

PART THREE Derivative Instruments 297

CHAPTER 11 Forwards and Futures Valuation 299

CHAPTER 12 Bond Futures Contracts 309

Appendix 12.1 The Conversion Factor for the Long Gilt Future 324

CHAPTER 13 Swaps 329

Appendix 13.1 Calculating Futures Strip Rates and Implied Swap Rates 370

CHAPTER 14 Credit Derivatives I: Instruments and Applications 375

Appendix 14.1 Bond Credit Ratings 418

CHAPTER 15 Credit Derivatives II: Pricing, Valuation, and the Basis 421

CHAPTER 16 Options I 435

Appendix 16.1 Summary of Basic Statistical Concepts 456

Appendix 16.2 Lognormal Distribution of Returns 457

Appendix 16.3 Black-Scholes Model in Microsoft Excel 458

CHAPTER 17 Options II 461

PART FOUR Bond Trading and Hedging 475

CHAPTER 18 Value-at-Risk and Credit VaR 477

Appendix 18.1 Assumption of Normality 513

CHAPTER 19 Government Bond Analysis, the Yield Curve, and Relative-Value Trading 517

CHAPTER 20 Approaches to Trading and Hedging 551

Appendix 20.1 Summary of Derivation of Optimum Hedge Equation 571

Appendix 20.2 Forward-Rate Structure in Conventional Yield-Curve Environment 571

CHAPTER 21 Derivatives Risk Management: Convexity, Collateral, and Correlation 573

APPENDIX A Statistical Concepts 621

APPENDIX B Basic Tools 627

APPENDIX C Introduction to the Mathematics of Fixed-Income Pricing 633

APPENDIX D About the Companion Website 639

Glossary 641

Index 669