Fixed Income Securities: Valuation, Risk, and Risk Management

CONTENTS

Preface

Acknowledgments

PART I BASICS

1 AN INTRODUCTION TO FIXED INCOME MARKETS

1.1 Introduction

1.1.1 The Complexity of Fixed Income Markets

1.1.2 No Arbitrage and the Law of One Price

1.2 The Government Debt Markets

1.2.1 Zero Coupon Bonds

1.2.2 Floating Rate Coupon Bonds

1.2.3 The Municipal Debt Market

1.3 The Money Market

1.3.1 Federal Funds Rate

1.3.2 Eurodollar Rate

1.3.3 LIBOR

1.4 The Repo Market

1.4.1 General Collateral Rate and Special Repos

1.4.2 What if the T-bond Is Not Delivered?

1.5 The Mortgage Backed Securities Market and Asset-Backed Securities Market

1.6 The Derivatives Market

1.6.1 Swaps

1.6.2 Futures and Forwards

1.6.3 Options

1.7 Roadmap of Future Chapters

1.8 Summary

2 BASICS OF FIXED INCOME SECURITIES

2.1 Discount Factors

2.1.1 Discount Factors across Maturities

2.1.2 Discount Factors over Time

2.2 Interest Rates

2.2.1 Discount Factors, Interest Rates, and Compounding Frequencies

2.2.2 The Relation between Discounts Factors and Interest Rates

2.3 The Term Structure of Interest Rates

2.3.1 The Term Structure of Interest Rates over Time

2.4 Coupon Bonds

2.4.1 From Zero Coupon Bonds to Coupon Bonds

2.4.2 From Coupon Bonds to Zero Coupon Bonds

2.4.3 Expected Return and the Yield to Maturity

2.4.4 Quoting Conventions

2.5 Floating Rate Bonds

2.5.1 The Pricing of Floating Rate Bonds

2.5.2 Complications

2.6 Summary

2.7 Exercises

2.8 Case Study: Orange County Inverse Floaters

2.8.1 Decomposing Inverse Floaters into a Portfolio of Basic Securities

2.8.2 Calculating ...