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An Introduction to the Bond Markets

Book Description

This book gives an introduction to the bond markets for practitioners and new entrants who need to understand what they are, how they work and how they can be used, but do not want to be intimidated by mathematical formulae. By the end of the book readers will be able to decide whether to invest in the bond market. The mathematical formulae will be relegated to the appendices and supplemented by a companion website which allows users to enter their own bond market investments, to simulate anticipated events and see the results.

Patrick Brown is well-known as Chairman of the European Bond commission (recently retired)

The only bond book that does not rely heavily on mathematical formulae

Table of Contents

  1. Cover Page
  2. Title Page
  3. Copyright
  4. Dedication
  5. Contents
  6. Preface
  7. Disclaimer
  8. Introduction
  9. Chapter 1: What Is a Bond And Who Issues Them?
    1. 1.1 DESCRIPTION OF A BOND
    2. 1.2 THE DIFFERENCE BETWEEN CORPORATE BONDS AND EQUITIES
  10. Chapter 2: Types of Bonds and Other Instruments
    1. 2.1 FIXED-RATE BONDS
    2. 2.2 FLOATING-RATE NOTES
    3. 2.3 INDEX-LINKED BONDS
    4. 2.4 HYBRID BONDS
    5. 2.5 OTHER INSTRUMENT TYPES
  11. Chapter 3: How Do You Price and Value a Bond?
    1. 3.1 COMPOUND INTEREST
    2. 3.2 DISCOUNTING AND YIELD CONSIDERATIONS
    3. 3.3 ACCRUED INTEREST
    4. 3.4 HOW BONDS ARE QUOTED
    5. 3.5 BOND PRICING
    6. 3.6 YIELDS AND RELATED MEASURES
    7. 3.7 FLOATING-RATE NOTES
    8. 3.8 REAL REDEMPTION YIELD
    9. 3.9 MONEY MARKET YIELDS AND DISCOUNTS
  12. Chapter 4: Bond Options and Variants
    1. 4.1 CALLABLE BONDS
    2. 4.2 PUTABLE BONDS
    3. 4.3 CONVERTIBLE BONDS
    4. 4.4 DUAL CURRENCY BONDS
    5. 4.5 MORTGAGE-BACKED SECURITIES
    6. 4.6 COLLATERALIZED DEBT OBLIGATIONS
    7. 4.7 BONDS WITH CONDITIONAL COUPON CHANGES
    8. 4.8 REVERSE FLOATERS
    9. 4.9 BONDS WITH WARRANTS ATTACHED
  13. Chapter 5: Yield Curves
    1. 5.1 YIELD CURVE SHAPES
    2. 5.2 ZERO-COUPON OR SPOT YIELD CURVES
    3. 5.3 FORWARD OR FORWARD–FORWARD YIELD CURVES
    4. 5.4 PAR YIELD CURVES
    5. 5.5 INVESTMENT STRATEGIES FOR POSSIBLE YIELD CURVE CHANGES
  14. Chapter 6: Repos
    1. 6.1 CLASSIC REPOS
    2. 6.2 SELL/BUY-BACKS
    3. 6.3 STOCK BORROWING/LENDING
  15. Chapter 7: Option Calculations
    1. 7.1 BUYING A CALL OPTION
    2. 7.2 WRITING A CALL OPTION
    3. 7.3 BUYING A PUT OPTION
    4. 7.4 WRITING A PUT OPTION
    5. 7.5 THEORETICAL VALUE OF AN OPTION
    6. 7.6 COMBINING OPTIONS
  16. Chapter 8: Credit and Other Risks and Ratings
    1. 8.1 CREDIT RISK
    2. 8.2 LIQUIDITY
  17. Chapter 9: Swaps, Futures and Derivatives
    1. 9.1 SWAPS
    2. 9.2 CREDIT RISK IN SWAPS
    3. 9.3 SWAPTIONS
    4. 9.4 FUTURES
    5. 9.5 CREDIT DEFAULT SWAPS
  18. Chapter 10: Portfolio and Other Considerations
    1. 10.1 HOLDING PERIOD RETURNS
    2. 10.2 IMMUNIZATION
    3. 10.3 PORTFOLIO MEASURES
    4. 10.4 ALLOWING FOR TAX
  19. Chapter 11: Indices
    1. 11.1 BOND INDEX CLASSIFICATIONS
    2. 11.2 CHOOSING INDICES
    3. 11.3 INDEX DATA CALCULATIONS
    4. 11.4 INDEX CONTINUITY
  20. Appendix A: Using the Companion Website
  21. Appendix B: Mathematical Formulae
    1. B.1 ACCRUED INTEREST
    2. B.2 CURRENT YIELD
    3. B.3 SIMPLE YIELD TO MATURITY
    4. B.4 REDEMPTION YIELD
    5. B.5 DURATION
    6. B.6 MODIFIED DURATION
    7. B.7 CONVEXITY
    8. B.8 DISPERSION
    9. B.9 ANNUITIES
    10. B.10 SIMPLE MARGIN
    11. B.11 DISCOUNTED MARGIN
    12. B.12 REAL REDEMPTION YIELD
    13. B.13 CONVERTIBLE CALCULATIONS
    14. B.14 DISCOUNT
    15. B.15 MONEY MARKET YIELD
    16. B.16 CERTIFICATE OF DEPOSIT YIELD
    17. B.17 WARRANT CALCULATIONS
    18. B.18 COMPOUNDING FREQUENCY ADJUSTMENTS
    19. B.19 PORTFOLIO YIELD
    20. B.20 PORTFOLIO MACAULAY DURATION
    21. B.21 PORTFOLIO MODIFIED DURATION
  22. Appendix C: Bond Market Glossary
  23. References
  24. Index