Book description
The deep understanding of the forces that affect the valuation, risk and return of fixed income securities and their derivatives has never been so important. As the world of fixed income securities becomes more complex, anybody who studies fixed income securities must be exposed more directly to this complexity. This book provides a thorough discussion of these complex securities, the forces affecting their prices, their risks, and of the appropriate risk management practices. Fixed Income Securities, however, provides a methodology, and not a shopping list. It provides instead examples and methodologies that can be applied quite universally, once the basic concepts have been understood.
Table of contents
- Cover Page
- Title Page
- Copyright
- Dedication
- CONTENTS
- PREFACE
- Acknowledgments
-
PART I: FIXED INCOME MARKETS
- CHAPTER 1: AN INTRODUCTION TO FIXED INCOME MARKETS
- CHAPTER 2: BASICS OF FIXED INCOME SECURITIES
-
CHAPTER 3: BASICS OF INTEREST RATE RISK MANAGEMENT
- 3.1 THE VARIATION IN INTEREST RATES
- 3.2 DURATION
- 3.3 INTEREST RATE RISK MANAGEMENT
- 3.4 ASSET-LIABILITY MANAGEMENT
- 3.5 SUMMARY
- 3.6 EXERCISES
- 3.7 CASE STUDY: THE 1994 BANKRUPTCY OF ORANGE COUNTY
- 3.8 CASE ANALYSIS: THE EX-ANTE RISK IN ORANGE COUNTY’S PORTFOLIO
- 3.9 APPENDIX: EXPECTED SHORTFALL UNDER THE NORMAL DISTRIBUTION
- CHAPTER 4: BASIC REFINEMENTS IN INTEREST RATE RISK MANAGEMENT
- CHAPTER 5: INTEREST RATE DERIVATIVES: FORWARDS AND SWAPS
- CHAPTER 6: INTEREST RATE DERIVATIVES: FUTURES AND OPTIONS
-
CHAPTER 7: INFLATION, MONETARY POLICY, AND THE FEDERAL FUNDS RATE
- 7.1 THE FEDERAL RESERVE
- 7.2 PREDICTING THE FUTURE FED FUNDS RATE
- 7.3 UNDERSTANDING THE TERM STRUCTURE OF INTEREST RATES
- 7.4 COPING WITH INFLATION RISK: TREASURY INFLATION-PROTECTED SECURITIES
- 7.5 SUMMARY
- 7.6 EXERCISES
- 7.7 CASE STUDY: MONETARY POLICY DURING THE SUBPRIME CRISIS OF 2007 - 2008
- 7.8 APPENDIX: DERIVATION OF EXPECTED RETURN RELATION
- CHAPTER 8: BASICS OF RESIDENTIAL MORTGAGE BACKED SECURITIES
-
PART II: TERM STRUCTURE MODELS: TREES
- CHAPTER 9: ONE STEP BINOMIAL TREES
- CHAPTER 10: MULTI-STEP BINOMIAL TREES
- CHAPTER 11: RISK NEUTRAL TREES AND DERIVATIVE PRICING
- CHAPTER 12: AMERICAN OPTIONS
-
CHAPTER 13: MONTE CARLO SIMULATIONS ON TREES
- 13.1 MONTE CARLO SIMULATIONS ON A ONE-STEP BINOMIAL TREE
- 13.2 MONTE CARLO SIMULATIONS ON A TWO-STEP BINOMIAL TREE
- 13.3 MONTE CARLO SIMULATIONS ON MULTI-STEP BINOMIAL TREES
- 13.4 PRICING PATH DEPENDENT OPTIONS
- 13.5 SPOT RATE DURATION BY MONTE CARLO SIMULATIONS
- 13.6 PRICING RESIDENTIAL MORTGAGE BACKED SECURITIES
- 13.7 SUMMARY
- 13.8 EXERCISES
-
PART III: TERM STRUCTURE MODELS: CONTINUOUS TIME
- CHAPTER 14: INTEREST RATE MODELS IN CONTINUOUS TIME
- CHAPTER 15: NO ARBITRAGE AND THE PRICING OF INTEREST RATE SECURITIES
-
CHAPTER 16: DYNAMIC HEDGING AND RELATIVE VALUE TRADES
- 16.1 THE REPLICATING PORTFOLIO
- 16.2 REBALANCING
- 16.3 APPLICATION 1: RELATIVE VALUE TRADES ON THE YIELD CURVE
- 16.4 APPLICATION 2: HEDGING DERIVATIVE EXPOSURE
- 16.5 THE THETA - GAMMA RELATION
- 16.6 SUMMARY
- 16.7 EXERCISES
- 16.8 CASE STUDY: RELATIVE VALUE TRADES ON THE YIELD CURVE
- 16.9 APPENDIX: DERIVATION OF DELTA FOR CALL OPTIONS
-
CHAPTER 17: RISK NEUTRAL PRICING AND MONTE CARLO SIMULATIONS
- 17.1 RISK NEUTRAL PRICING
- 17.2 FEYNMAN-KAC THEOREM
- 17.3 APPLICATION OF RISK NEUTRAL PRICING: MONTE CARLO SIMULATIONS
- 17.4 EXAMPLE: PRICING A RANGE FLOATER
- 17.5 HEDGING WITH MONTE CARLO SIMULATIONS
- 17.6 CONVEXITY BY MONTE CARLO SIMULATIONS
- 17.7 SUMMARY
- 17.8 EXERCISES
- 17.9 CASE STUDY: PROCTER & GAMBLE / BANKERS TRUST LEVERAGED SWAP
- CHAPTER 18: THE RISK AND RETURN OF INTEREST RATE SECURITIES
- CHAPTER 19: NO ARBITRAGE MODELS AND STANDARD DERIVATIVES
- Chapter 20: THE MARKET MODEL FOR STANDARD DERIVATIVES AND OPTIONS’ VOLATILITY DYNAMICS
-
CHAPTER 21: FORWARD RISK NEUTRAL PRICING AND THE LIBOR MARKET MODEL
- 21.1 ONE DIFFICULTY WITH RISK NEUTRAL PRICING
- 21.2 CHANGE OF NUMERAIRE AND THE FORWARD RISK NEUTRAL DYNAMICS
- 21.3 THE OPTION PRICING FORMULA IN “NORMAL” MODELS
- 21.4 THE LIBOR MARKET MODEL
- 21.5 FORWARD RISK NEUTRAL PRICING AND THE BLACK FORMULA FOR SWAPTIONS
- 21.6 THE HEATH, JARROW, AND MORTON FRAMEWORK
- 21.7 UNNATURAL LAG AND CONVEXITY ADJUSTMENT
- 21.8 SUMMARY
- 21.9 EXERCISES
- 21.10 APPENDIX: DERIVATIONS
-
CHAPTER 22: MULTIFACTOR MODELS
- 22.1 MULTIFACTOR ITO’S LEMMA WITH INDEPENDENT FACTORS
- 22.2 NO ARBITRAGE WITH INDEPENDENT FACTORS
- 22.3 CORRELATED FACTORS
- 22.4 THE FEYNMAN-KAC THEOREM
- 22.5 FORWARD RISK NEUTRAL PRICING
- 22.6 THE MULTIFACTOR LIBOR MARKET MODEL
- 22.7 AFFINE AND QUADRATIC TERM STRUCTURE MODELS
- 22.8 SUMMARY
- 22.9 EXERCISES
- 22.10 APPENDIX
- REFERENCES
- INDEX
- LIST OF FIGURES
- LIST OF TABLES
Product information
- Title: Fixed Income Securities: Valuation, Risk, and Risk Management
- Author(s):
- Release date: January 2010
- Publisher(s): Wiley
- ISBN: 9780470109106
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