Fixed-Income Securities and Derivatives Handbook Analysis and Valuation

ISBN-10: 1576601641

ISBN-13: 9781576601648

Edition: 2005

Authors: Moorad Choudhry
List price: $79.95
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Description: Today's financial practitioners need to be fully conversant with the differences in the way that bonds are structured, valued, and traded. "Fixed Income Securities and Derivatives Handbook is a comprehensive guide to the array of techniques and applications used in analysis and valuation of principal debt market instruments. With a wide range of methodologies covered, the reader will gain a solid understanding of fixed-income securities and their associated derivatives. The book investigates the fundamentals of fixed-income analysis by reviewing its underpinnings alongside the latest research and presenting it in an accessible way, whether the practitioner is new to the field or seasoned and needing a refresher on new developments. The research is summarized in a way that enables readers to apply results to their individual requirements. A mix of academic theory and market practice, "Fixed Income Securities and Derivatives Handbook presents an enlightening framework so readers can obtain a firm grounding in fixed-income analytics.

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Book details

List price: $79.95
Copyright year: 2005
Publisher: John Wiley & Sons, Incorporated
Publication date: 4/1/2005
Binding: Hardcover
Pages: 368
Size: 6.00" wide x 9.25" long x 1.25" tall
Weight: 1.628
Language: English

Foreword
Preface
Introduction to Bonds
The Bond Instrument
The Time Value of Money
Basic Features and Definitions
Present Value and Discounting
Discount Factors
Bond Pricing and Yield: The Traditional Approach
Bond Pricing
Bond Yield
Accrued Interest
Clean and Dirty Bond Prices
Day-Count Conventions
Bond Instruments and Interest Rate Risk
Duration, Modified Duration, and Convexity
Duration
Properties of Macaulay Duration
Modified Duration
Convexity
Bond Pricing and Spot and Forward Rates
Zero-Coupon Bonds
Coupon Bonds
Bond Price in Continuous Time
Fundamental Concepts
Stochastic Rates
Coupon Bonds
Forward Rates
Guaranteeing a Forward Rate
The Spot and Forward Yield Curve
Calculating Spot Rates
Term Structure Hypotheses
The Expectations Hypothesis
Liquidity Premium Hypothesis
Segmented Markets Hypothesis
Interest Rate Modeling
Basic Concepts
Short-Rate Processes
Ito's Lemma
One-Factor Term-Structure Models
Vasicek Model
Hull-White Model
Further One-Factor Term-Structure Models
Cox-Ingersoll-Ross (CIR) Model
Two-Factor Interest Rate Models
Brennan-Schwartz Model
Extended Cox-Ingersoll-Ross Model
Heath-Jarrow-Morton (HJM) Model
The Multifactor HJM Model
Choosing a Term-Structure Model
Fitting the Yield Curve
Yield Curve Smoothing
Smoothing Techniques
Cubic Polynomials
Non-Parametric Methods
Spline-Based Methods
Nelson and Siegel Curves
Comparing Curves
Selected Cash and Derivative Instruments
Forwards and Futures Valuation
Forwards and Futures
Cash Flow Differences
Relationship Between Forward and Futures Prices
Forward-Spot Parity
The Basis and Implied Repo Rate
Swaps
Interest Rate Swaps
Market Terminology
Swap Spreads and the Swap Yield Curve
Generic Swap Valuation
Intuitive Swap Valuation
Zero-Coupon Swap Valuation
Calculating the Forward Rate from Spot-Rate Discount Factors
The Key Principles of an Interest Rate Swap
Valuation Using the Final Maturity Discount Factor
Non-Plain Vanilla Interest Rate Swaps
Swaptions
Valuation
Interest Rate Swap Applications
Corporate and Investor Applications
Hedging Bond Instruments Using Interest Rate Swaps
Options
Option Basics
Terminology
Option Instruments
Option Pricing: Setting the Scene
Limits on Option Prices
Option Pricing
The Black-Scholes Option Model
Assumptions
Pricing Derivative Instruments Using the Black-Scholes Model
Put-Call Parity
Pricing Options on Bonds Using the Black-Scholes Model
Interest Rate Options and the Black Model
Comments on the Black-Scholes Model
Stochastic Volatility
Implied Volatility
Other Option Models
Measuring Option Risk
Option Price Behavior
Assessing Time Value
American Options
The Greeks
Delta
Gamma
Theta
Vega
Rho
Lambda
The Option Smile
Caps and Floors
Credit Derivatives
Credit Risk
Credit Risk and Credit Derivatives
Applications of Credit Derivatives
Credit Derivative Instruments
Credit Default Swap
Credit Options
Credit-Linked Notes
Total Return Swaps
Investment Applications
Capital Structure Arbitrage
Exposure to Market Sectors
Credit Spreads
Funding Positions
Credit-Derivative Pricing
Pricing Total Return Swaps
Asset-Swap Pricing
Credit-Spread Pricing Models
The Analysis of Bonds with Embedded Options
Understanding Option Elements Embedded in a Bond
Basic Options Features
Option Valuation
The Call Provision
The Binomial Tree of Short-Term Interest Rates
Arbitrage-Free Pricing
Options Pricing
Risk-Neutral Pricing
Recombining and Nonrecombining Trees
Pricing Callable Bonds
Price and Yield Sensitivity
Measuring Bond Yield Spreads
Price Volatility of Bonds with Embedded Options
Effective Duration
Effective Convexity
Sinking Funds
Inflation-Indexed Bonds
Basic Concepts
Choice of Index
Indexation Lag
Coupon Frequency
Type of Indexation
Index-Linked Bond Cash Flows and Yields
TIPS Cash Flow Calculations
TIPS Price and Yield Calculations
Assessing Yields on Index-Linked Bonds
Which to Hold: Indexed or Conventional Bonds?
Analysis of Real Interest Rates
Indexation Lags and Inflation Expectations
An Inflation Term Structure
Hybrid Securities
Floating-Rate Notes
Inverse Floating-Rate Notes
Hedging Inverse Floaters
Indexed Amortizing Notes
Advantages for Investors
Synthetic Convertible Notes
Investor Benefits
Interest Differential Notes
Benefits for Investors
Securitization and Mortgage-Backed Securities
Reasons for Undertaking Securitization
Market Participants
Securitizing Mortgages
Growth of the Market
Types of Mortgages and Their Cash Flows
Mortgage Bond Risk
Types of Mortgage-Backed Securities
Cash Flow Patterns
Prepayment Analysis
Prepayment Models
Collateralized Mortgage Securities
Sequential Pay
Planned Amortization Class
Targeted Amortization Class
Z-Class Bonds
Interest-Only and Principal-Only Classes
Nonagency CMO Bonds
Credit Enhancements
Commercial Mortgage-Backed Securities
Issuing a CMBS
Types of CMBS Structures
Evaluation and Analysis of Mortgage-Backed Bonds
Term to Maturity
Calculating Yield and Price: Static Cash Flow Model
Bond Price and Option-Adjusted Spread
Effective Duration and Convexity
Total Return
Price-Yield Curves of Mortgage Pass-Through, PO, and IO Securities
Collateralized Debt Obligations
CDO Structures
Conventional CDO Structures
Synthetic CDO Structures
Motivation Behind CDO Issuance
Balance Sheet-Driven Transactions
Investor-Driven Arbitrage Transactions
Analysis and Evaluation
Portfolio Characteristics
Cash Flow Analysis and Stress Testing
Originator's Credit Quality
Operational Aspects
Review of Credit-Enhancement Mechanisms
Legal Structure of the Transaction
Expected Loss
Selected Market Trading Considerations
The Yield Curve, Bond Yield, and Spot Rates
Practical Uses of Redemption Yield and Duration
The Concept of Yield
Yield Comparisons in the Market
Measuring a Bond's True Return
Implied Spot Rates and Market Zero-Coupon Yields
Spot Yields and Coupon-Bond Prices
Implied Spot Yields and Zero-Coupon Bond Yields
Determining Strip Values
Strips Market Anomalies
Strips Trading Strategy
Case Study: Treasury Strip Yields and Cash Flow Analysis
Approaches to Trading
Futures Trading
Yield Curves and Relative Value
Determinants of Government Bond Yields
Characterizing the Complete Term Structure
Identifying Relative Value in Government Bonds
Hedging Bond Positions
Simple Hedging Approaches
Hedge Analysis
Summary of the Derivation of the Optimum-Hedge Equation
The Black-Scholes Model in Microsoft Excel
References
Index
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