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| Foreword | |
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| Acknowledgments | |
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| Introduction | |
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| Note on Rounding Differences | |
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| Features of Debt Securities | |
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| Introduction | |
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| Indenture and Covenants | |
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| Maturity | |
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| Par Value | |
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| Coupon Rate | |
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| Provisions for Paying Off Bonds | |
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| Conversion Privilege | |
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| Put Provision | |
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| Currency Denomination | |
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| Embedded Options | |
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| Borrowing Funds to Purchase Bonds | |
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| Risks Associated with Investing in Bonds | |
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| Introduction | |
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| Interest Rate Risk | |
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| Yield Curve Risk | |
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| Call and Prepayment Risk | |
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| Reinvestment Risk | |
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| Credit Risk | |
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| Liquidity Risk | |
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| Exchange Rate or Currency Risk | |
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| Inflation or Purchasing Power Risk | |
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| Volatility Risk | |
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| Event Risk | |
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| Sovereign Risk | |
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| Overview of Bond Sectors and Instruments | |
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| Introduction | |
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| Sectors of the Bond Market | |
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| Sovereign Bonds | |
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| Semi-Government/Agency Bonds | |
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| State and Local Governments | |
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| Corporate Debt Securities | |
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| Asset-Backed Securities | |
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| Collateralized Debt Obligations | |
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| Primary Market and Secondary Market for Bonds | |
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| Understanding Yield Spreads | |
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| Introduction | |
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| Interest Rate Determination | |
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| U.S. Treasury Rates | |
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| Yields on Non-Treasury Securities | |
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| Non-U.S. Interest Rates | |
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| Swap Spreads | |
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| Introduction to the Valuation of Debt Securities | |
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| Introduction | |
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| General Principles of Valuation | |
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| Traditional Approach to Valuation | |
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| The Arbitrage-Free Valuation Approach | |
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| Valuation Models | |
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| Yield Measures, Spot Rates, and Forward Rates | |
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| Introduction | |
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| Sources of Return | |
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| Traditional Yield Measures | |
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| Theoretical Spot Rates | |
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| Forward Rates | |
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| Introduction to the Measurement of Interest Rate Risk | |
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| Introduction | |
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| The Full Valuation Approach | |
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| Price Volatility Characteristics of Bonds | |
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| Duration | |
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| Convexity Adjustment | |
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| Price Value of a Basis Point | |
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| The Importance of Yield Volatility | |
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| Term Structure and Volatility of Interest Rates | |
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| Introduction | |
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| Historical Look at the Treasury Yield Curve | |
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| Treasury Returns Resulting from Yield Curve Movements | |
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| Constructing the Theoretical Spot Rate Curve for Treasuries | |
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| The Swap Curve (LIBOR Curve) | |
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| Expectations Theories of the Term Structure of Interest Rates | |
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| Measuring Yield Curve Risk | |
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| Yield Volatility and Measurement | |
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| Valuing Bonds with Embedded Options | |
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| Introduction | |
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| Elements of a Bond Valuation Model | |
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| Overview of the Bond Valuation Process | |
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| Review of How to Value an Option-Free Bond | |
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| Valuing a Bond with an Embedded Option Using the Binomial Model | |
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| Valuing and Analyzing a Callable Bond | |
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| Valuing a Putable Bond | |
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| Valuing a Step-Up Callable Note | |
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| Valuing a Capped Floater | |
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| Analysis of Convertible Bonds | |
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| Mortgage-Backed Sector of the Bond Market | |
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| Introduction | |
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| Residential Mortgage Loans | |
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| Mortgage Passthrough Securities | |
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| Collateralized Mortgage Obligations | |
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| Stripped Mortgage-Backed Securities | |
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| Nonagency Residential Mortgage-Backed Securities | |
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| Commercial Mortgage-Backed Securities | |
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| Asset-Backed Sector of the Bond Market | |
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| Introduction | |
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| The Securitization Process and Features of ABS | |
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| Home Equity Loans | |
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| Manufactured Housing-Backed Securities | |
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| Residential MBS Outside the United States | |
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| Auto Loan-Backed Securities | |
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| Student Loan-Backed Securities | |
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| SBA Loan-Backed Securities | |
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| Credit Card Receivable-Backed Securities | |
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| Collateralized Debt Obligations | |
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| Valuing Mortgage-Backed and Asset-Backed Securities | |
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| Introduction | |
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| Cash Flow Yield Analysis | |
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| Zero-Volatility Spread | |
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| Monte Carlo Simulation Model and OAS | |
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| Measuring Interest Rate Risk | |
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| Valuing Asset-Backed Securities | |
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| Valuing Any Security | |
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| Interest Rate Derivative Instruments | |
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| Introduction | |
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| Interest Rate Futures | |
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| Interest Rate Options | |
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| Interest Rate Swaps | |
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| Interest Rate Caps and Floors | |
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| Valuation of Interest Rate Derivative Instruments | |
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| Introduction | |
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| Interest Rate Futures Contracts | |
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| Interest Rate Swaps | |
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| Options | |
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| Caps and Floors | |
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| General Principles of Credit Analysis | |
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| Introduction | |
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| Credit Ratings | |
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| Traditional Credit Analysis | |
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| Credit Scoring Models | |
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| Credit Risk Models | |
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| Case Study | |
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| Introduction to Bond Portfolio Management | |
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| Introduction | |
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| Setting Investment Objectives for Fixed-Income Investors | |
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| Developing and Implementing a Portfolio Strategy | |
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| Monitoring the Portfolio | |
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| Adjusting the Portfolio | |
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| Measuring a Portfolio's Risk Profile | |
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| Introduction | |
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| Review of Standard Deviation and Downside Risk Measures | |
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| Tracking Error | |
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| Measuring a Portfolio's Interest Rate Risk | |
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| Measuring Yield Curve Risk | |
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| Spread Risk | |
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| Credit Risk | |
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| Optionality Risk for Non-MBS | |
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| Risks of Investing in Mortgage-Backed Securities | |
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| Multi-Factor Risk Models | |
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| Managing Funds against a Bond Market Index | |
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| Introduction | |
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| Degrees of Active Management | |
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| Strategies | |
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| Scenario Analysis for Assessing Potential Performance | |
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| Using Multi-Factor Risk Models in Portfolio Construction | |
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| Performance Evaluation | |
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| Leveraging Strategies | |
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| Portfolio Immunization and Cash Flow Matching | |
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| Introduction | |
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| Immunization Strategy for a Single Liability | |
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| Contingent Immunization | |
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| Immunization for Multiple Liabilities | |
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| Cash Flow Matching for Multiple Liabilities | |
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| Relative-Value Methodologies for Global Credit Bond Portfolio Management | |
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| Introduction | |
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| Credit Relative-Value Analysis | |
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| Total Return Analysis | |
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| Primary Market Analysis | |
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| Liquidity and Trading Analysis | |
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| Secondary Trade Rationales | |
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| Spread Analysis | |
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| Structural Analysis | |
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| Credit Curve Analysis | |
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| Credit Analysis | |
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| Asset Allocation/Sector Rotation | |
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| International Bond Portfolio Management | |
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| Introduction | |
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| Investment Objectives and Policy Statements | |
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| Developing a Portfolio Strategy | |
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| Portfolio Construction | |
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| Appendix | |
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| Controlling Interest Rate Risk with Derivatives | |
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| Introduction | |
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| Controlling Interest Rate Risk with Futures | |
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| Controlling Interest Rate Risk with Swaps | |
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| Hedging with Options | |
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| Using Caps and Floors | |
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| Hedging Mortgage Securities to Capture Relative Value | |
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| Introduction | |
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| The Problem | |
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| Mortgage Security Risks | |
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| How Interest Rates Change Over Time | |
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| Hedging Methodology | |
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| Hedging Cuspy-Coupon Mortgage Securities | |
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| Credit Derivatives in Bond Portfolio Management | |
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| Introduction | |
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| Market Participants | |
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| Why Credit Risk Is Important | |
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| Total Return Swap | |
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| Credit Default Products | |
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| Credit Spread Products | |
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| Synthetic Collateralized Debt Obligations | |
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| Basket Default Swaps | |
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| About the CFA Program | |
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| About the Author | |
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| About the Contributors | |
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| Index | |