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The Advanced Fixed Income and Derivatives Management Guide: (The Wiley Finance Series)

The Advanced Fixed Income and Derivatives Management Guide: (The Wiley Finance Series)

          
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About the Book

A highly-detailed, practical analysis of fixed income management The Advanced Fixed Income and Derivatives Management Guide provides a completely novel framework for analysis of fixed income securities and portfolio management, with over 700 useful equations. The most detailed analysis of inflation linked and corporate securities and bond options analysis available;, this book features numerous practical examples that can be used for creating alpha transfer to any fixed income portfolio. With a framework that unifies back office operations, such as risk management and portfolio management in a consistent way, readers will be able to better manage all sectors of fixed income, including bonds, mortgages, credits, and currencies, and their respective derivatives, including bond and interest rate futures and options, callable bonds, credit default swaps, interest rate swaps, swaptions and inflation swaps. Coverage includes never-before-seen detail on topics including recovery value, partial yields, arbitrage, and more, and the companion website features downloadable worksheets that can be used for measuring the risks of securities based on the term structure models. Many theoretical models of the Term Structure of Interest Rates (TSIR) lack the accuracy to be used by market practitioners, and the most popular models are not mathematically stable. This book helps readers develop stable and accurate TSIR for all fundamental rates, enabling analysis of even the most complex securities or cash flow structure. The components of the TSIR are almost identical to the modes of fluctuations of interest rates and represent the language with which the markets speak. Examine unique arbitrage, risk measurement, performance attribution, and replication of bond futures Learn to estimate recovery value from market data, and the impact of recovery value on risks Gain deeper insight into partial yields, product design, and portfolio construction Discover the proof that corporate bonds cannot follow efficient market hypothesis This useful guide provides a framework for systematic and consistent management of all global fixed income assets based on the term structure of rates. Practitioners seeking a more thorough management system will find solutions in The Advanced Fixed Income and Derivatives Management Guide.

Table of Contents:
List of Tables xi List of Figures xv Abbreviations xv11 Notation xxv Preface xxix Acknowledgement xxxi Foreword xxxiii Introduction xxxv 1. Review of Market Analytics 1 1.1. Bond Valuation 1 1.2. Simple Bond Analytics 3 1.3. Portfolio Analytics 5 1.4. Key Rate Durations 8 2. Term Structure of Rates 11 2.1. Linear and Non-linear Space 11 2.2. Basis Functions 13 2.3. Decay Coefficient 16 2.4. Forward Rates 17 2.5. Par Curve 18 2.6. Application to the US Yield Curve 18 2.7. Historical Yield Curve Components 20 2.8. Significance of the Term Structure Components 23 2.9. Estimating the Value of the Decay Coefficient 25 3. Comparison of Basis Functions 29 3.1. Polynomial Basis Functions 29 3.2. Exponential Basis Functions 30 3.3. Orthogonal Basis Functions 30 3.4. Key Basis Functions 31 3.5. Transformation of Basis Functions 32 3.6. Comparison with the Principal Components Analysis 39 3.7. Mean Reversion 44 3.8. Historical Tables of Basis Functions 45 4. Risk Measurement 47 4.1. Interest Rate Risks 47 4.2. Zero Coupon Bonds Examples 49 4.3. Eurodollar Futures Contracts Examples 51 4.4. Conventional Duration of a Portfolio 52 4.5. Risks and Basis Functions 53 4.6. Application to Key Rate Duration 56 4.7 Risk Measurement of a Treasury Index 60 5. Performance Attribution 63 5.1. Curve Performance 64 5.2. Yield Performance 65 5.3. Security Performance 65 5.4. Portfolio Performance 67 5.5. Aggregation of Contribution to Performance 73 6. Libor and Swaps 77 6.1. Term Structure of Libor 79 6.2. Adjustment Table for Rates 80 6.3. Risk Measurement and Performance Attribution of Swaps 83 6.4. Floating Libor Valuation and Risks 84 6.5. Repo and Financing Rate 86 6.6. Structural Problem of Swaps 87 7. Trading 91 7.1. Liquidity Management 91 7.2. Forward Pricing 95 7.3. Curve Trading 95 7.4. Synthetic Securities 101 7.5. Real Time Trading 104 8. Linear Optimization and Portfolio Replication 107 8.1. Portfolio Optimization Example 110 8.2. Conversion to and from Conventional KRD 112 8.3. KRD and Term Structure Hedging 113 9. Yield Volatility 115 9.1. Price Function of Yield Volatility 116 9.2. Term Structure of Yield Volatility 118 9.3. Volatility Adjustment Table 122 9.4. Forward and Instantaneous Volatility 124 10. Convexity and Long Rates 127 10.1. Theorem: Long Rates Can Never Change 127 10.2. Convexity Adjusted TSIR 130 10.3. Application to Convexity 134 10.4. Convexity Bias of Eurodollar Futures 138 11. Real Rates and Inflation Expectations 145 11.1. Term Structure of Real Rates 145 11.2. Theorem: Real Rates Cannot Have Log-normal Distribution 146 11.3. Inflation Linked (IL) Bonds 149 11.4. Seasonal Adjustments to Inflation 155 11.5. Inflation Swaps 160 12. Credit Spreads 165 12.1. Equilibrium Credit Spread 165 12.2. Term Structure of Credit Spreads 167 12.3. Risk Measurement of Credit Securities 167 12.4. Credit Risks Example 168 12.5. Floating Rate Credit Securities 170 12.6. TSCS Examples 172 12.7. Relative Values of Credit Securities 174 12.8. Performance Attribution of Credit Securities 176 12.9. Term Structure of Agencies 178 12.10. Performance Contribution 179 12.11. Partial Yield 181 13. Default and Recovery 185 13.1. Recovery, Guarantee and Default Probability 185 13.2. Risk Measurement with Recovery 189 13.3. Partial Yield of Complex Securities 195 13.4. Forward Coupon 197 13.5. Credit Default Swaps 197 14. Deliverable Bond Futures and Options 201 14.1. Simple Options Model 202 14.2. Conversion Factor 204 14.3. Futures Price on Delivery Date 205 14.4. Futures Price Prior to Delivery Date 205 14.5. Early versus Late Delivery 209 14.6. Strike Prices of the Underlying Options 209 14.7. Risk Measurement of Bond Futures 210 14.8. Analytics for Bond Futures 211 14.9. Australian Bond Futures 213 14.10. Replication of Bond Futures 213 14.11. Backtesting of Bond Futures 216 15. Bond Options 217 15.1. European Bond Options 218 15.2. Exercise Boundary of American Options 221 15.3. Present Value of a Future Bond Option 222 15.4. Feedforward Pricing 226 15.5. Bond Option Greeks 230 15.6. Risk Measurement of Bond Options 231 15.7. Treasury and Real Bonds Options 233 15.8. Bond Options with Credit Risk 234 15.9. Theorem: Credit Prices Are Not Arbitrage-free 236 15.10. Correlation Model 238 15.11. Credit Bond Options Examples 239 15.12. Risk Measurement of Complex Bond Options 241 15.13. Remarks on Bond Options 242 16. Currencies 245 16.1. Currency Forwards 246 16.2. Currency as an Asset Class 247 16.3. Currency Trading and Hedging 248 16.4. Valuation and Risks of Currency Positions 249 16.5. Currency Futures 251 16.6. Currency Options 251 17. Prepayment Model 253 17.1. Home Sale 254 17.2. Refinancing 255 17.3. Accelerated Payments 256 17.4. Prepayment Factor 257 18. Mortgage Bonds 259 18.1. Mortgage Valuation 260 18.2. Current Coupon 262 18.3. Mortgage Analytics 264 18.4. Mortgage Risk Measurement and Valuation 268 19. Product Design and Portfolio Construction 273 19.1. Product Analyzer 275 19.2. Portfolio Analyzer 278 19.3. Competitve Universe 279 19.4. Portfolio Construction 280 20. Calculating Parameters of the TSIR 287 20.1. Optimizing TSIR 289 20.2. Optimizing TSCR 292 20.3. Optimizing TSCR with No Convexity 294 20.4. Estimating Recovery Value 295 20.5. Robustness of the Term Structure Components 295 20.6. Calculating the Components of the TSYV 296 21. Implementation 299 21.1. Term Structure 299 21. 1.1. Primary Curve 299 21. 1.2. Real Curve 300 21. 1.3. Credit Curve and Recovery Value 301 21.2. Discount Function and Risk Measurement 302 21.3. Cash Flow Engine 303 21.4. Invoice Price 306 21.5. Analytics 306 21.6. Trade Date versus Settle Date 308 21.7. American Options 309 21.8. Linear Programming 313 21.9. Mortgage Analysis 314 References 317 Index 319


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Product Details
  • ISBN-13: 9781119014140
  • Publisher: John Wiley & Sons Inc
  • Publisher Imprint: John Wiley & Sons Inc
  • Depth: 25
  • Language: English
  • Returnable: N
  • Spine Width: 28 mm
  • Width: 173 mm
  • ISBN-10: 111901414X
  • Publisher Date: 08 May 2015
  • Binding: Hardback
  • Height: 244 mm
  • No of Pages: 368
  • Series Title: The Wiley Finance Series
  • Weight: 612 gr


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