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Preface | |
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Introduction | |
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Sectors of the U.S. Bond Market | |
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Overview of Bond Features | |
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Risks Associated with Investing in Bonds | |
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Secondary Market for Bonds | |
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Financial Innovation and the Bond Market | |
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Overview of the Book | |
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Pricing of Bonds | |
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Review of Time Value of Money | |
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Pricing a Bond | |
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Complications | |
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Pricing Floating-Rate and Inverse-Floating-Rate Securities | |
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Price Quotes and Accrued Interest | |
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Summary | |
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Measuring Yield | |
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Computing the Yield or Internal Rate of Return on Any Investment | |
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Conventional Yield Measures | |
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Potential Sources of a Bond's Dollar Return | |
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Total Return | |
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Applications of the Total Return (Horizon Analysis) | |
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Calculating Yield Changes | |
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Summary | |
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Bond Price Volatility | |
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Review of the Price-Yield Relationship for Option-Free Bonds | |
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Price Volatility Characteristics of Option-Free Bonds | |
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Measures of Bond Price Volatility | |
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Convexity | |
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Additional Concerns When Using Duration | |
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Don't Think of Duration as a Measure of Time | |
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Approximating a Bond's Duration and Convexity Measure | |
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Measuring a Bond Portfolio's Responsiveness to Nonparallel Changes in Interest Rates | |
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Summary | |
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Factors Affecting Bond Yields and the Term Structure of Interest Rates | |
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Base Interest Rate | |
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Risk Premium | |
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Term Structure of Interest Rates | |
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Summary | |
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Treasury and Agency Securities Markets | |
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Treasury Securities | |
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Stripped Treasury Securities | |
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Federal Agency Securities | |
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Summary | |
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Corporate Debt Instruments | |
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Corporate Bonds | |
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Medium-Term Notes | |
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Commercial Paper | |
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Bankruptcy and Creditor Rights | |
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Summary | |
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Municipal Securities | |
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Types and Features of Municipal Securities | |
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Municipal Money Market Products | |
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Municipal Derivative Securities | |
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Credit Risk | |
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Risks Associated with Investing in Municipal Securities | |
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Yields on Municipal Bonds | |
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Municipal Bond Market | |
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The Taxable Municipal Bond Market | |
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Summary | |
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Non-U.S. Bonds | |
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Classification of Global Bond Markets | |
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Foreign Exchange Risk and Bond Returns | |
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Eurobond Market | |
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Non-U.S. Government Bond Markets | |
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The Pfandbriefe Market | |
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Emerging Market Bonds | |
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Summary | |
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Residential Mortgage Loans | |
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What Is a Mortgage? | |
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Participants in the Mortgage Market | |
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Alternative Mortgage Instruments | |
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Nonconforming Mortgages | |
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Risks Associated with Investing in Mortgages | |
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Summary | |
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Mortgage Pass-Through Securities | |
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Cash Flow Characteristics | |
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WAC and WAM | |
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Agency Pass-Throughs | |
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Nonagency Pass-Throughs | |
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Prepayment Conventions and Cash Flow | |
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Factors Affecting Prepayments and Prepayment Modeling | |
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Cash Flow for Nonagency Pass-Throughs | |
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Cash Flow Yield | |
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Prepayment Risk and Asset/Liability Management | |
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Secondary Market Trading | |
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Summary | |
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Collateralized Mortgage Obligations and Stripped Mortgage-Backed Securities | |
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Collateralized Mortgage Obligations | |
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Stripped Mortgage-Backed Securities | |
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Summary | |
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Commercial Mortgage-Backed Securities | |
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Commercial Mortgage Loans | |
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Commercial Mortgage-Backed Securities | |
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Summary | |
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Asset-Backed Securities | |
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Creation of an ABS | |
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Collateral Type and Securitization Structure | |
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Credit Risks Associated with Investing in ABS | |
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Review of Several Major Types of ABS | |
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Summary | |
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Collateralized Debt Obligations | |
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Structure of a CDO | |
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Arbitrage Transactions | |
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Cash Flow Transactions | |
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Market Value Transactions | |
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Synthetic CDOs | |
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Summary | |
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Interest-Rate Models | |
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Mathematical Description of One-Factor Interest-Rate Models | |
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Arbitrage-Free Versus Equilibrium Models | |
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Empirical Evidence on Interest-Rate Changes | |
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Selecting an Interest-Rate Model | |
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Estimating Interest-Rate Volatility Using Historical Data | |
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Summary | |
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Analysis of Bonds with Embedded Options | |
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Drawbacks of Traditional Yield Spread Analysis | |
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Static Spread: An Alternative to Yield Spread | |
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Callable Bonds and Their Investment Characteristics | |
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Components of a Bond with an Embedded Option | |
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Valuation Model | |
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Option-Adjusted Spread | |
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Effective Duration and Convexity | |
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Summary | |
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Analysis of Residential Mortgage-Backed Securities | |
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Static Cash Flow Yield Methodology | |
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Monte Carlo Simulation Methodology | |
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Total Return Analysis | |
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Summary | |
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Analysis of Convertible Bonds | |
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Convertible Bond Provisions | |
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Minimum Value of a Convertible Bond | |
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Market Conversion Price | |
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Current Income of Convertible Bond Versus Stock | |
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Downside Risk with a Convertible Bond | |
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Investment Characteristics of a Convertible Bond | |
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Pros and Cons of Investing in a Convertible Bond | |
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Types of Investors in Convertible Bonds | |
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Options Approach | |
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Summary | |
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Corporate Bond Credit Analysis | |
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Overview of Corporate Bond Credit Analysis | |
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Analysis of Business Risk | |
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Corporate Governance Risk | |
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Financial Risk | |
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Corporate Bond Credit Analysis and Equity Analysis | |
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Summary | |
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Appendix A | |
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Appendix B | |
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Credit Risk Modeling | |
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Difficulties in Credit Risk Modeling | |
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Overview of Credit Risk Modeling | |
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Credit Ratings Versus Credit Risk Models | |
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Structural Models | |
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Reduced-Form Models | |
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Incomplete Information Models | |
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Summary | |
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Active Bond Portfolio Management Strategies | |
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Overview of the Investment Management Process | |
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Tracking Error and Bond Portfolio Strategies | |
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Active Portfolio Strategies | |
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The Use of Leverage | |
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Summary | |
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Indexing | |
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Objective of and Motivation for Bond Indexing | |
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Factors to Consider in Selecting an Index | |
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Bond Indexes | |
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Indexing Methodologies | |
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Logistical Problems in Implementing an Indexing Strategy | |
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Enhanced Indexing | |
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Summary | |
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Liability Funding Strategies | |
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General Principles of Asset/Liability Management | |
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Immunization of a Portfolio to Satisfy a Single Liability | |
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Structuring a Portfolio to Satisfy Multiple Liabilities | |
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Extensions of Liability Funding Strategies | |
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Combining Active and Immunization Strategies | |
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Summary | |
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Bond Performance Measurement and Evaluation | |
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Requirements for a Bond Performance and Attribution Analysis Process | |
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Performance Measurement | |
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Performance Attribution Analysis | |
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Summary | |
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Interest-Rate Futures Contracts | |
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Mechanics of Futures Trading | |
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Futures Versus Forward Contracts | |
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Risk and Return Characteristics of Futures Contracts | |
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Currently Traded Interest-Rate Futures Contracts | |
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Pricing and Arbitrage in the Interest-Rate Futures Market | |
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Bond Portfolio Management Applications | |
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Summary | |
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Interest-Rate Options | |
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Options Defined | |
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Differences Between an Option and a Futures Contract | |
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Types of Interest-Rate Options | |
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Intrinsic Value and Time Value of an Option | |
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Profit and Loss Profiles for Simple Naked Option Strategies | |
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Put-Call Parity Relationship and Equivalent Positions | |
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Option Price | |
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Models for Pricing Options | |
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Sensitivity of Option Price to Change in Factors | |
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Hedge Strategies | |
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Summary | |
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Interest-Rate Swaps and Agreements | |
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Interest-Rate Swaps | |
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Interest-Rate Agreements (Caps and Floors) | |
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Summary | |
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Credit Derivatives | |
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Types of Credit Risk | |
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Categorization of Credit Derivatives | |
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ISDA Documentation | |
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Asset Swaps | |
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Total Return Swaps | |
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Credit Default Swaps | |
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Credit Spread Options | |
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Credit Spread Forwards | |
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Structured Credit Products | |
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Summary | |
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Index | |