Demystifying Fixed Income Analytics : A Practical Guide (Hardcover)

Lists of Figures, Tables, Case Studies Foreword by G. Mahalingam Preface Acknowledgements Abbreviations Chapter 1: Fixed Income Securities Market: An Overview Fixed Income Securities Market ? An Introduction Global Debt Markets - A Review Debt Markets in India Govt. Debt Market in India Non-Govt. Securities / Corporate Bond Market in India Primary Debt Market in India (Govt. vs. Non-Govt. Debts) Secondary Market Trading in Govt. Securities Secondary Market Trading in Non-Govt. Securities Issuance and Settlement of Debt Securities in India Primary Issuance and Settlement in Govt. Securities Issuance and Settlement in Non-Govt. Securities Issuance and Settlement of Debt Securities in India Primary Issuance and Settlement in Govt. Securities Issuance and Settlement in Non-Govt. Securities Settlement for Secondary Market Trading in Debt Securities in India Various Participants in the Debt Securities market Major Investors in Indian Debt Market Intermediaries in Indian Debt Market Self-Learning Exercise Bibliography Chapter 2: Fixed Income Instruments: Various Classifications Basic Features of Fixed Income Security Debt Market Instruments: Classification Classification of Debt Instruments based on Markets Classification of Debt Instruments based on their Feature Fixed Rate Bond, Floating Rate Bond, Zero Coupon Bond, STRIPS, Bond with Call and Put Option, Step-up/Step-down Bond, ABS/MBS, Tax Saving Bond, Perpetual Bond, Junk Bond, Covered Bond, Secured/Unsecured Bond, Inflation Indexed Bond, Basel III Bond, Green Bond Issuing Sectors and Sub-Sectors Wise Classification of Debt Instruments Classification of Debt Instruments based on Currency of Debt Issue Regulatory Classification of Debt Instruments (in India) Self-Learning Exercise Bibliography Chapter 3: Basic Statistics Measures of Central Tendency Arithmetic Mean/Average Moving Average Median Mode Measures of Dispersion Absolute Measures of Dispersion (Range, Mean Deviation, Standard Deviation, Joint Standard Deviation) Relative Measures of Dispersion (Coefficient of Variation, Coefficient of Mean Deviation) Skewness and Kurtosis Correlation and Regression Probability Distribution Test of Hypothesis Self-Learning Exercise Bibliography Chapter 4: Risk and Return Measures Risk and Return in Bonds: Meaning and Linkages Risks Associated with Fixed Income Securities Interest Rate Risk Reinvestment Risk Yield Curve Risk Liquidity Risk Call Risk (Timing Risk) Credit Risk Legal Risk Foreign Exchange Risk Volatility Risk Sovereign Risk (Country Risk, Political Risk) Return Measures for Fixed Income Securities Nominal Return / Coupon Rate (CR) Current Yield (CY) Average Return or Yield to Maturity (YTM) Return till the Call (Put) Date (YTC / YTP) Yield to Worst (YTW) and Yield to Best (YTB) Total Return (TR) Limitations of Different Yield Measures Case Study: Analysis of Returns on a Debt Portfolio Self-Learning Exercise Bibliography Chapter 5: Term Structures of Interest Rates Interest Rates: Meaning and Different Types Some Important Interest Rates in Indian Debt Market Benchmark Rate G-Sec. Yield T-Bill Rate Swap Rate Major Determinants of Bond Yields Term Structure of Interest Rates: Different Types Yield Curve Methods of Constructing Yield Curve Zero Coupon Yield / Spot Rate Curve Forward Rate Curve The Credit Spread and Non-GSec. ZCYC Theories of Interest Rate Term Structure Expectations Theory Liquidity Preference Theory Market Segmentation Theory Preferred Habitat Theory Case Study: Term Structure of Interest Rates in India Self-Learning Exercise Bibliography Chapter 6: Pricing and Valuation Techniques Valuation of Bond: Meaning Valuation of a Bond: Broader Steps Valuation of Bond: Important Issues Bond Valuation in-between Two Coupon Payment Dates / with Accrued Interest Selection of Day Count Conventions Selection of Single or Multiple Discounting Rates Presence of Some Special Feature (s) Valuation of Floating Rate Bond Valuation of Bond with Embedded Options Valuation of FI Securities: RBI-FIMMDA Guidelines Case Study: Bond Valuation Self-Learning Exercise Bibliography Chapter 7: Interest Rate Sensitivity Measures Bond Price Sensitivity to Interest Rates: Meaning Price-Yield Relationship Various Interest Rate Sensitivity Measures Duration or Macaulay Duration Modified Duration Effective Duration M-Duration of Floating Rate Bond Price Value of a Basis Point (PVBP) or PV01 Portfolio Sensitivity Measure Limitations of Duration/M-Duration/PV01 Linearity in the Price-Yield Relations Parallel Shift in Yield Curve Convexity: A Supplement to M-Duration Case Study: Interest Rate Sensitivity of a Bond Portfolio Self-Learning Exercise Bibliography Chapter 8: Financial Derivatives Contract Financial Derivatives: Meaning & Types of Contracts Exchange Traded Derivatives Over-the-Counter Derivatives Forwards Futures Swaps Options Financial Derivatives Market: Worldwide & in India Participants in Financial Derivatives Market Application of Financial Derivatives Self-Learning Exercise Bibliography Chapter 9: Interest Rate Futures Interest Rate Futures Contract: Meaning & Product Structure How Does Interest Rate Futures Contract Work Interest Rate Futures Market in India Important Features of IRF Contract Underlying Instrument (Actual or Notional) Deliverable Basket Conversion Factor Implied Repo Rate Cheapest-to-Deliver Issue Interest Rate Futures Contract: Product Structures in India T-Bills Futures Contract in India Single Bond Futures Contract in India Pricing of Interest Rate Futures Method of Settlement Mark-to-Market (MTM) Settlement Final Settlement Market participants Advantage / Usefulness of IRF Contract Hedging Underlying Exposure Use of Arbitrage Opportunity Directional Trading Asset-Liability / Duration Management Case Study: Hedge Effectiveness of Bond Futures Contracts in India Self-Learning Exercise Bibliography Chapter 10: Forward Rate Agreement and Interest Rate Swaps FRA & IRS: Meaning & Product Structure FRA and IRS Market in India Pricing of Forward Rate Agreement Settlement of a FRA Deal Different Types of Interest Rate Swaps Important Structures of IRS in India INBMK Swap MIBOR Overnight Index Swap MIFOR Overnight Index Swap Theory of Comparative Advantage in IRS Pricing and Valuation of Interest Rate Swap Pricing of IRS Marked-To-Market (MTM) of INBMK Swaps Marked-to-Market Valuation of MIBOR-OIS: Settlement of Periodical Interest in IRS Contracts Settlement of Periodical Interest in INBMK Swaps Settlement of Periodical Interest in MIBOR OIS Offsetting / Premature Unwinding / Cancellation of FRA / IRS Premature Unwinding / Termination of INBMK Swaps Premature Unwinding / Termination of OIS Usefulness of FRA / Interest Rate Swap Risk in FRA / Interest Rate Swap Interest Rate Risk Credit Risk Documentation for FRA / Interest Rate Swap Case Study: Overnight Index Swap (Focus: MTM Valuation, PV01, and Premature Cancellation Self-Learning Exercise Bibliography Chapter 11: Interest Rate Options and Structured Products Interest Rate Options: Meaning & Structures Pricing of Interest Rate Options Intrinsic Value Time Value Factors Affecting Options’ Price Pricing Models for Interest Rate Options Arbitrage-free Binomial Option Pricing Model Interest Rate Caps, Floors, and Collar: Meaning & Structures Case Study: Cost-Effectiveness of Interest Rate Derivatives Self-Learning Exercise Bibliography Chapter 12: Credit Default Swaps Meaning and Definition of Credit Derivatives Credit Default Swaps (CDS) History and Growth of Credit Default Swaps Reasons for High Growth in CDS Market Different Types of Credit Default Swaps Features of Credit Default Swaps Current Scope and Futures Challenges for CDS in India Self-Learning Exercise Bibliography Chapter 13: Trading and Management Strategies Bond Portfolio Management: Meaning Setting Investment Objectives Development and Implementation of Portfolio Management Strategy Portfolio Monitoring and Necessary Adjustments: Passive Management Strategies Bond Indexing Cash Flow Matching Classical Immunization Advantages and Limitations of Passive Strategy: Active Management Strategies Important News affecting Interest Rates and Bond Yields: Yield Curve Shifts and Different Types of Active Management Strategies No shift in the Yield Curve: Riding the Yield Curve Parallel YC Shift: Shortening Portfolio’s Duration Parallel YC Shift: Lengthening Portfolio’s Duration Un-Parallel Shift (YC Shifts with Twists): Yield Curve Flattening, Yield Curve Steepening Un-Parallel Shift (YC Shifts with Humpedness): Positive Butterfly, Negative Butterfly Un-Parallel Shift in the YC: Possible Strategies (Bullet Strategy, Barbell Strategy, Ladder Strategy) Strengths and Weaknesses for Active Management Bond Portfolio Optimization Self-Learning Exercise Bibliography Chapter 14: Risk Management (Focus: Market Risk) Risk Management and Basel Accord: An Overview Market Risk Interest Rate Risk Liquidity Risk Credit Risk Non-Financial or Operational Risk Measuring Risk in Fixed Income Securities Standardized Approach Internal Model Approach (IMA) Value at Risk: A Risk Measurement Tool Variance-Covariance (VCV) Approach Historical Simulation (HS) Approach Monte-Carlo Simulation (MCS) Approach Expected Shortfall: A Risk Measure beyond VaR Back Testing and Stress Testing of Risk Measurement Tool Back Testing VaR & ES Estimate Stress Testing VaR & ES Estimate Market Risk Capital Charge on Fixed Income Portfolio of a Bank Market Risk Capital Charge under SMM Limitations of Standardized Method to Estimate MRCC Market Risk Capital Charge under IMA Case Study: Estimation of MRCC on FI Portfolio under Advanced (VaR) Method Self-Learning Exercise Bibliography 　 Glossary Index