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Fixed Income Markets and Their Derivatives, 3rd Edition

Book Description

The 3e of this well-respected textbook continues the tradition of providing clear and concise explanations for fixed income securities, pricing, and markets. The book matches well with fixed income securities courses. The book's organization emphasizes institutions in the first part, analytics in the second, selected segments of fixed income markets in the third, and fixed income derivatives in the fourth. This enables instructors to customize the material to suit their course structure and the mathematical ability of their students.

* New material on Credit Default Swaps, Collateralized Debt Obligations, and an intergrated discussion of the Credit Crisis have been added.
*Online Resources for instructors on password protected website provides worked out examples for each chapter.
* A detailed description of all key financial terms is provided in a glossary at the back of the book.

Table of Contents

  1. Cover image
  2. Title page
  3. Table of Contents
  4. Copyright
  5. Dedication
  6. Preface
  7. Acknowledgments
  8. Part 1: Institutions and conventions
    1. Chapter 1. Overview of fixed income markets
      1. Chapter Summary
      2. 1.1 Overview of Debt Contracts
      3. 1.2 Players and Their Objectives
      4. 1.3 Classification of Debt Securities
      5. 1.4 Risk of Debt Securities
      6. 1.5 Return-Risk History
      7. Suggested References and Readings
    2. Chapter 2. Price-yield conventions
      1. Chapter Summary
      2. 2.1 Concepts of Compounding and Discounting
      3. 2.2 Yield to Maturity or Internal Rate of Return
      4. 2.3 Prices in Practice
      5. 2.4 Prices and Yields of T-Bills
      6. 2.5 Prices and Yields of T-Notes and T-Bonds
      7. 2.6 Price-Yield Relation is Convex
      8. 2.7 Conventions in Other Markets
      9. Suggested References and Readings
    3. Chapter 3. Federal Reserve (central bank) and fixed income markets
      1. Chapter Summary
      2. 3.1 Central Banks
      3. 3.2 Monetary Policies
      4. 3.3 Fed Funds Rates
      5. 3.4 Payments Systems and Conduct of Auctions
      6. 3.5 Fed’s Actions to Stem the Credit Crunch of 2007–2008
      7. Suggested Readings and References
    4. Chapter 4. Organization and transparency of fixed income markets
      1. Chapter Summary
      2. 4.1 Introduction
      3. 4.2 Primary Markets
      4. 4.3 Interdealer Brokers
      5. 4.4 Secondary Markets
      6. 4.5 Evolution of Secondary Markets
      7. Suggested Readings and References
    5. Chapter 5. Financing debt securities: Repurchase (repo) agreements
      1. Chapter Summary
      2. 5.1 Repo and Reverse Repo Contracts
      3. 5.2 Real-Life Features
      4. 5.3 Long and Short Positions Using Repo and Reverse Repo
      5. 5.4 General Collateral Repo Agreement
      6. 5.5 Special Collateral Repo Agreement
      7. 5.6 Fails in Repo Market
      8. 5.7 Developments in Repo Markets
      9. Suggested Readings and References
    6. Chapter 6. Auctions of Treasury debt securities
      1. Chapter Summary
      2. 6.1 Benchmark Auctions Schedule
      3. 6.2 Conduct of Treasury Auctions
      4. 6.3 Auction Theory and Empirical Evidence
      5. 6.4 Auction Cycles and Financing Rates
      6. Suggested Readings and References
  9. Part 2: Analytics of fixed income markets
    1. Chapter 7. Bond mathematics: DV01, duration, and convexity
      1. Chapter Summary
      2. 7.1 DV01/PVBP or Price Risk
      3. 7.2 Duration
      4. 7.3 Trading and Hedging
      5. 7.4 Convexity
      6. 7.5 Effective Duration and Effective Convexity
      7. Suggested Readings and References
    2. Chapter 8. Yield curve and the term structure
      1. Chapter Summary
      2. 8.1 Yield-Curve Analysis
      3. 8.2 Term Structure
      4. 8.3 Forward Rates of Interest
      5. 8.4 Strips Markets
      6. 8.5 Extracting Zeroes in Practice
      7. Suggested References and Readings
    3. Chapter 9. Models of yield curve and the term structure
      1. Chapter Summary
      2. 9.1 Introduction
      3. 9.2 Modeling Mean-Reverting Interest Rates
      4. 9.3 Calibration to Market Data
      5. 9.4 Interest Rate Derivatives
      6. 9.5 A Review of One-Factor Models
      7. Suggested References and Readings
  10. Part 3: Some fixed income market segments
    1. Chapter 10. Modeling credit risk and corporate debt securities
      1. Chapter Summary
      2. 10.1 Defaults, Business Cycles, and Recoveries
      3. 10.2 Rating Agencies
      4. 10.3 Structural Models of Default
      5. 10.4 Implementing Structural Models: The KMV Approach
      6. 10.5 Costs of Financial Distress and Corporate Debt Pricing
      7. 10.6 Reduced-Form Models
      8. 10.7 Credit Spreads Puzzle
      9. Suggested Readings and References
    2. Chapter 11. Mortgages, federal agencies, and agency debt
      1. Chapter Summary
      2. 11.1 Overview of Mortgage Contracts
      3. 11.2 Types of Mortgages
      4. 11.3 Mortgage Cash Flows and Yields
      5. 11.4 Federal Agencies
      6. 11.5 Federal Agency Debt Securities
      7. Suggested Readings and References
    3. Chapter 12. Mortgage-backed securities
      1. Chapter Summary
      2. 12.1 Overview of Mortgage-Backed Securities
      3. 12.2 Risks: Prepayments
      4. 12.3 Factors Affecting Prepayments
      5. 12.4 Valuation Framework
      6. 12.5 Valuation of Pass-through MBS
      7. 12.6 REMICs
      8. Suggested readings and references
    4. Chapter 13. Inflation-linked debt: Treasury inflation-protected securities
      1. Chapter Summary
      2. 13.1 Overview of Inflation-indexed Debt
      3. 13.2 Role of Indexed Debt
      4. 13.3 Design of Tips
      5. 13.4 Cash-flow Structure
      6. 13.5 Real Yields, Nominal Yields, and Break-even Inflation
      7. 13.6 Cash Flows, Prices, Yields, and Risks Of Tips
      8. 13.7 Investor’s Perspective
      9. Suggested readings and references
  11. Part 4: Fixed income derivatives
    1. Chapter 14. Derivatives on overnight interest rates
      1. Chapter Summary
      2. 14.1 Overview
      3. 14.2 Fed Funds Futures Contracts
      4. 14.3 Overnight Index Swaps (OIS)
      5. 14.4 Valuation of OIS
      6. 14.5 OIS Spreads With Other Money Market Yields
      7. Suggested readings and references
    2. Chapter 15. Eurodollar futures contracts
      1. Chapter Summary
      2. 15.1 Eurodollar Markets and LIBOR
      3. 15.2 Eurodollar Futures Markets and LIBOR
      4. 15.3 Deriving Swap Rates from ED Futures
      5. 15.3.1 Eurodollar futures versus swap markets
      6. 15.4 Intermarket Spreads
      7. 15.5 Options on ED Futures
      8. 15.5.1 Caps, floors, and collars on LIBOR
      9. 15.6 Valuation of Caps
      10. Suggested Readings and References
    3. Chapter 16. Interest-rate swaps
      1. Chapter Summary
      2. 16.1 Swaps and Swap-Related Products and Terminology
      3. 16.2 Valuation of Swaps
      4. 16.3 Swap Spreads
      5. 16.4 Risk Management
      6. 16.5 Swap Bid Rate, Offer Rate, and Bid-Offer Spreads
      7. 16.6 Swaptions
      8. 16.7 Conclusion
      9. Suggested readings and references
    4. Chapter 17. Treasury futures contracts
      1. Chapter Summary
      2. 17.1 Forward Contracts Defined
      3. 17.2 Futures Contracts Defined
      4. 17.3 Design of Contractual Features
      5. 17.4 Futures Versus Forwards
      6. 17.5 Treasury Futures Contracts
      7. Suggested readings and references
    5. Chapter 18. Credit default swaps: Single-name, portfolio, and indexes
      1. Chapter Summary
      2. 18.1 Credit Default Swaps
      3. 18.2 Players
      4. 18.3 Growth of CDS Market and Evolution
      5. 18.4 Restructuring and Deliverables
      6. 18.5 Settlement on Credit Events
      7. 18.6 Valuation of CDS
      8. 18.7 Credit-Linked Notes
      9. 18.8 Credit Default Indexes
      10. Suggested Readings and References
    6. Chapter 19. Structured credit products: Collateralized debt obligations
      1. Chapter Summary
      2. 19.1 Collateralized Debt Obligations
      3. 19.2 Analysis of CDO Structure
      4. 19.3 Growth of the CDO Market
      5. 19.4 Credit Default Indexes
      6. 19.5 CDX Tranches
      7. 19.6 Valuation of CDOs
      8. Suggested Readings and References
  12. Glossary of financial terms
  13. Index