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Preface | |
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About the Authors | |
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Time Value of Money | |
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Future Value of a Single Cash Flow | |
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Present Value of a Single Cash Flow | |
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Compounding/Discounting When Interest Is Paid More Than Annually | |
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Future and Present Values of an Ordinary Annuity | |
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Yield (Internal Rate of Return) | |
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Concepts Presented in this Chapter | |
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Appendix: Compounding and Discounting in Continuous Time | |
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Questions | |
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Yield Curve Analysis: Spot Rates and Forward Rates | |
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A Bond Is a Package of Zero-Coupon Instruments | |
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Theoretical Spot Rates | |
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Forward Rates | |
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Dynamics of the Yield Curve | |
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Concepts Presented in this Chapter | |
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Questions | |
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Day Count Conventions and Accrued Interest | |
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Day Count Conventions | |
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Computing the Accrued Interest | |
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Concepts Presented in this Chapter | |
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Questions | |
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Valuation of Option-Free Bonds | |
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General Principles of Valuation | |
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Determining a Bond's Value | |
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The Price/Discount Rate Relationship | |
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Time Path of Bond | |
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Valuing a Zero-Coupon Bond | |
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Valuing a Bond Between Coupon Payments | |
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Traditional Approach to Valuation | |
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The Arbitrage-Free Valuation Approach | |
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Concepts Presented in this Chapter | |
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Questions | |
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Yield Measures | |
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Sources of Return | |
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Traditional Yield Measures | |
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Yield to Call | |
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Yield to Put | |
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Yield to Worst | |
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Cash Flow Yield | |
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Portfolio Yield Measures | |
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Yield Measures for U.S. Treasury Bills | |
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Yield Spread Measures Relative to a Spot Rate Curve | |
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Concepts Presented in this Chapter | |
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Appendix: Mathematics of the Internal Rate of Return | |
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Questions | |
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Analysis of Floating Rate Securities | |
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General Features of Floaters | |
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Valuing a Risky Floater | |
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Valuation of Floaters with Embedded Options | |
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Margin Measures | |
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Concepts Presented in this Chapter | |
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Questions | |
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Valuation of Bonds with Embedded Options | |
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Overview of the Valuation of Bonds with Embedded Options | |
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Option-Adjusted Spread and Option Cost | |
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Lattice Model | |
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Binomial Model | |
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Illustration | |
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Concepts Presented in this Chapter | |
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Questions | |
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Cash Flow for Mortgage-Backed Securities and Amortizing Asset-Backed Securities | |
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Cash Flow of Mortgage-Backed Securities | |
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Amortizing Asset-Backed Securities | |
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Concepts Presented in this Chapter | |
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Questions | |
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Valuation of Mortgage-Backed and Asset-Backed Securities | |
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Static Cash Flow Yield Analysis | |
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Monte Carlo Simulation/OAS | |
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Concepts Presented in this Chapter | |
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Questions | |
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Analysis of Convertible Bonds | |
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General Characteristics of Convertible Bonds | |
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Tools for Analyzing Convertibles | |
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Call and Put Features | |
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Convertible Bond Arbitrage | |
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Other Types of Convertibles | |
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Concepts Presented in this Chapter | |
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Questions | |
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Total Return | |
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Computing the Total Return | |
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OAS-Total Return | |
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Total Return to Maturity | |
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Total Return for a Mortgage-Backed Security | |
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Portfolio Total Return | |
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Total Return Analysis for Multiple Scenarios | |
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Concepts Presented in this Chapter | |
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Questions | |
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Measuring Interest Rate Risk | |
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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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Other Duration Measures | |
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Convexity | |
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Price Value of a Basis Point | |
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The Importance of Yield Volatility | |
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Concepts Presented in this Chapter | |
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Questions | |
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Value-at-Risk Measure and Extensions | |
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Value-at-Risk | |
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Conditional Value-at-Risk | |
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Concepts Presented in this Chapter | |
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Questions | |
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Analysis of Inflation-Protected Bonds | |
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Breakeven Inflation rate | |
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Valuation of TIPS | |
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Measuring Interest Rate Risk | |
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Concepts Presented in this Chapter | |
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Questions | |
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The Tools of Relative Value Analysis | |
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How Portfolio Managers Add Value | |
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Yield Spreads over Swap and Treasury Curves | |
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Asset Swaps | |
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Credit Default Swaps | |
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Concepts Presented in this Chapter | |
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Questions | |
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Analysis of Interest Rate Swaps | |
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Description of an Interest Rate Swap | |
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Interpreting a Swap Position | |
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Terminology, Conventions, and Market Quotes | |
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Valuing Interest Rate Swaps | |
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Primary Determinants of Swap Spreads | |
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Dollar Duration of a Swap | |
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Concepts Presented in this Chapter | |
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Questions | |
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Estimating Yield Volatility | |
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Historical Volatility | |
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Implied Volatility | |
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Forecasting Yield Volatility | |
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Concepts Presented in this Chapter | |
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Questions | |
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Index | |