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| Introduction | |
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| Acknowledgments | |
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| The Relative Pricing of Fixed Income Securities with Fixed Cash Flows | |
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| Bond Prices, Discount Factors, and Arbitrage | |
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| The Time Value of Money | |
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| Treasury Bond Quotations | |
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| Discount Factors The Law of One Price | |
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| Arbitrage and the Law of One Price.Treasury STRIPS | |
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| Deriving the Replicating Portfolio | |
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| Application: Treasury Triplets and High Coupon Bonds | |
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| Bond Prices, Spot Rates, and Forward Rates | |
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| Semiannual Compounding | |
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| Spot Rates | |
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| Forward Rates | |
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| Maturity and Bond Price Maturity and Bond return | |
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| Treasury STRIPS, Continued | |
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| The Relation between Spot and Forward Rates and the Slope of the Term Structure | |
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| Yield-to-Maturity | |
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| Definition and Interpretation | |
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| Yield-to-Maturity and Spot Rates | |
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| Yield-to-Maturity and Relative Value: The Coupon Effect | |
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| Yield-to-Maturity and Realized return | |
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| Generalizations and Curve Fitting | |
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| Accrued Interest | |
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| Compounding Conventions | |
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| Yield and Compounding Conventions | |
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| Bad Days | |
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| Introduction to Curve Fitting | |
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| Piecewise Cubics | |
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| Application: Fitting the Term Structure in the U.S. Treasury Market on February 15, 2001 | |
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| Trading Case Study: A 7s-8s-9s Butterfly | |
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| Continuous Compounding | |
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| A Simple Cubic Spline | |
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| Measures of Price Sensitivity and Hedging | |
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| One-Factor Measures of Price Sensitivity DV01 | |
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| A Hedging Example, Part I: Hedging a Call Option | |
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| Duration | |
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| Convexity | |
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| A Hedging Example, Part II: A Short Convexity Position | |
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| Estimating Price Changes and Returns with DV01, Duration, and Convexity | |
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| Convexity in the Investment and Asset-Liability Management Contexts | |
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| Measuring the Price Sensitivity of Portfolios | |
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| A Hedging Example, Part III: The Negative Convexity of Callable Bonds | |
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| Measures of Price Sensitivity Based on Parallel Yield Shifts | |
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| Yield-Based DV01 | |
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| Modified and Macaulay Duration | |
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| Zero Coupon Bonds and a Reinterpretation of Duration | |
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| Par Bonds and Perpetuities | |
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| Duration, DV01, Maturity, and Coupon: A Graphical Analysis | |
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| Duration, DV01, and Yield | |
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| Yield-Based Convexity | |
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| Yield-Based Convexity of Zero Coupon Bonds | |
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| The Barbell versus the Bullet | |
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| Key Rate and Bucket Exposures | |
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| Key Rate Shifts | |
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| Key Rate 01s and Key Rate Durations | |
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| Hedging with Key Rate Exposures | |
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| Choosing Key Rates | |
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| Bucket Shifts and Exposures | |
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| Immunization | |
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| Multi-Factor Exposures and Risk Management | |
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| Regression-Based Hedging | |
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| Volatility-Weighted Hedging | |
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| One-Variable Regression-Based Hedging | |
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| Two-Variable Regression-Based Hedging | |
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| Trading Case Study: The Pricing of the 20-Year U.S. Treasury Sector | |
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| A Comment on Level Regressions | |
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| Term Structure Models | |
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| The Science of Term Structure Models | |
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| Rate and Price Trees | |
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| Arbitrage Pricing of Derivatives | |
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| Risk-Neutral Pricing | |
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| Arbitrage Pricing in a Multi-Period Setting | |
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| Example: Pricing a CMT Swap | |
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| Reducing the Time Step | |
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| Fixed Income versus Equity Derivatives | |
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| The Short-Rate Process and the Shape of the Term Structure | |
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| Expectations | |
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| Volatility and Convexity | |
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| Risk Premium | |
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| A Mathematical Description of Expectations, Convexity, and Risk Premium | |
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| Application: Expectations, Convexity, and Risk Premium in the U.S. Treasury Market on February 15, 2001 | |
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| Proofs of Equations (10.19) and (10.25) | |
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| The Art of Term Structure Models: Drift | |
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| Normally Distributed Rates, Zero Drift: Model 1 | |
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| Drift and Risk Premium: Model 2 | |
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| Time-Dependent Drift: The Ho-Lee Model | |
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| Desirability of Fitting to the Term Structure | |
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| Mean Reversion: The Vasicek (1977) Model | |
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| The Art of Term Structure Models: Volatility and Distribution | |
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| Time-Dependent Volatility: Model 3 | |
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| Volatility as a Function of the Short Rate: The Cox-Ingersoll-Ross and Lognormal Models | |
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| Tree for the Original Salomon Brothers Model | |
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| A Lognormal Model with Mean Reversion: The Black-Karasinski Model | |
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| Selected List of One-Factor Term Structure Models | |
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| Closed-Form Solutions for Spot Rates | |
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| Multi-Factor Term Structure Models | |
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| Motivation from Principal Components | |
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| A Two-Factor Model | |
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| Tree Implementation | |
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| Properties of the Two-Factor Model | |
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| Other Two-Factor and Multi-Factor Modeling Approaches | |
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| Closed-Form Solution for Spot Rates in the Two-Factor Model | |
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| Trading with Term Structure Models | |
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| Example Revisited: Pricing a CMT Swap | |
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| Option-Adjusted Spread | |
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| Profit and Loss (P&L) Attribution | |
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| P&L Attributions for a Position in the CMT Swap | |
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| Trading Case Study: Trading 2s-5s-10s in Swaps with a Two-Factor Model | |
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| Fitting Model Parameters | |
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| Hedging to the Model versus Hedging to the Market | |
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| Selected Securities | |
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| Repo | |
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| Repurchase Agreements and Cash Management | |
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| Repurchase Agreements and Financing Long Positions | |
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| Reverse Repurchase Agreements and Short Positions Carry | |
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| General Collateral and Specials | |
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| Special Repo Rates and the Auction Cycle | |
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| Liquidity Premiums of Recent Issues | |
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| Application: Valuing a Bond Trading Special in Repo | |
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| Application: Disruption in the Specials Market after September 11, 2001 | |
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| Forward Contracts | |
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| Definitions | |
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| Forward Price of a Deposit or a Zero Coupon Bond | |
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| Using Forwards to Hedge Borrowing Costs or Loan Proceeds | |
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| Forward Price of a Coupon Bond | |
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| Forward Yield and Forward DV01 | |
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| Forward Prices with Intermediate Coupon Payments | |
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| Value of a Forward Contract | |
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| Forward Prices in a Term Structure Model | |
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| Eurodollar and Fed Funds Futures | |
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| LIBOR and Eurodollar Futures | |
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| Hedging with Eurodollar Futures | |
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| Tails: A Closer Look at Hedging with Futures | |
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| Futures on Prices in a Term Structure Model | |
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| Futures on Rates in a Term Structure Model | |
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| The Futures-Forward Difference | |
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| TED Spreads | |
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| Application: Trading TED Spreads | |
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| Fed Funds | |
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| Fed Funds Futures | |
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| Application: Fed Funds Contracts and Predicted Fed Action | |
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| Hedging to Dates Not Matching Fed Funds and Eurodollar Futures Expirations | |
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| Interest Rate Swaps | |
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| Swap Cash Flows | |
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| Valuation of Swaps | |
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| Floating Rate Notes | |
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| Valuation of Swaps, Continued | |
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| Note on the Measurement of Fixed and Floating Interest Rate Risk | |
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| Swap Spreads | |
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| Major Uses of Interest Rate Swaps | |
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| Asset Swap Spreads and Asset Swaps | |
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| Trading Case Study: 30-Year FNMA Asset Swap Spreads | |
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| On the Credit Risk of Swap Agreements | |
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| Trading Case Study: Five-Year On-the-Run/Off-the-Run Spread of Spreads | |
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| Fixed Income Options | |
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| Definitions and Review | |
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| Pricing American and Bermudan Bond Options in a Term Structure Model | |
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| Application: FNMA 6.25s of July 19, 2011, and the Pricing of Callable Bonds | |
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| Graphical Analysis of Callable Bond Pricing | |
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| A Note on Yield-to-Call | |
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| Swaptions, Caps, and Floors | |
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| Quoting Prices with Volatility Measures in Fixed Income Options Markets | |
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| Smile and Skew | |
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| Note and Bond Futures | |
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| Mechanics | |
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| Cost of Delivery and the Determination of the Final Settlement Price | |
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| Motivations for a Delivery Basket and Conversion Factors | |
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| Imperfection of Conversion Factors and the Delivery Option at Expiration | |
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| Gross and Net Basis | |
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| Quality Option before Delivery | |
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| Some Notes on Pricing the Quality Option in Term Structure Models | |
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| Measures of Rate Sensitivity | |
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| Timing Option | |
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| End-of-Month Option | |
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| Trading Case Study: November '08 Basis into TYM0 | |
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| Mortgage-Backed Securities | |
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| Basic Mortgage Mathematics | |
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| Prepayment Option | |
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| Overview of Mortgage Pricing Models | |
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| Implementing Prepayment Models | |
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| Price-Rate Curve of a Mortgage Pass-Through | |
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| Application: Mortgage Hedging and the Directionality of Swap Spreads | |
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| Mortgage Derivatives, IOs, and Pos | |
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| Exercises | |
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| References And Suggestions For Further Reading | |
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| Index | |