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Siddhartha Jha is a Senior Analyst with Arrowhawk Capital Partners. Previously, as part of J. P. Morgan's Fixed Income Strategy Team, he covered a wide range of rates markets—from municipals to liquid products including Treasuries, swaps, futures, and options—analyzing macroeconomic trends as well as short-term technical factors. He spent five years there developing trade ideas, building quantitative models, and discussing market trends with institutional investors. He graduated cum laude with a dual bachelor's and master's in applied mathematics and statistics from Harvard University.
Acknowledgments | p. xiii |
Introduction | p. xv |
Tools of the Trade | p. 1 |
Basic Statistics | p. 2 |
Regression: The Fundamentals | p. 6 |
Regression: How Good a Fit? | p. 11 |
Principal Components Analysis | p. 14 |
Scaling through Time | p. 15 |
Backtesting Strategies | p. 16 |
Summary | p. 17 |
Bonds | p. 19 |
Basics of Bonds | p. 19 |
Risks Embedded in Fixed Income Instruments | p. 22 |
Discounting | p. 27 |
Bond Pricing | p. 28 |
Yield Curve | p. 32 |
Duration | p. 34 |
Convexity | p. 37 |
Repo Markets | p. 42 |
Bid Offer | p. 44 |
Calculating Profit/Loss of a Bond | p. 45 |
Carry | p. 45 |
Forward Rates | p. 47 |
Rolldown/Slide | p. 51 |
Curves and Spreads | p. 53 |
Butterfly Trades | p. 55 |
Summary | p. 56 |
Fixed Income Markets | p. 59 |
Federal Reserve | p. 60 |
Treasuries | p. 67 |
STRIPS | p. 70 |
TIPS | p. 71 |
Mortgages | p. 73 |
Agency Debt | p. 77 |
Corporate Bonds | p. 79 |
Municipal Bonds | p. 82 |
Summary | p. 84 |
Interest Rate Futures | p. 85 |
Basics of Futures Transactions | p. 86 |
Eurodollar Futures | p. 89 |
Convexity (or Financing) Bias | p. 92 |
Creating Longer-Dated Assets Using Eurodollar Futures | p. 93 |
Treasury Futures | p. 94 |
Fed Funds Futures | p. 101 |
Futures Positioning Data | p. 104 |
Summary | p. 105 |
Interest Rate Swaps | p. 107 |
Basic Principles | p. 108 |
Duration and Convexity | p. 111 |
Uses of Swaps | p. 112 |
Counterparty Risk | p. 115 |
Other Types of Swaps | p. 115 |
Summary | p. 124 |
Understanding Drivers of Interest Rates | p. 125 |
Supply and Demand for Borrowing | p. 126 |
Components of Fixed Income Supply and Demand | p. 141 |
Treasury Supply | p. 141 |
Other Sources of Fixed Income Supply | p. 145 |
Fixed Income Demand | p. 148 |
Short-Term Yield Drivers | p. 157 |
Summary | p. 172 |
Carry and Relative Value Trades | p. 173 |
Carry Trades | p. 173 |
Carry Trade Setup and Evaluation | p. 175 |
Pitfalls of the Carry Trade | p. 178 |
Carry-Efficient Directional Trades | p. 182 |
Relative Value Trades | p. 183 |
Setting Up Relative Value Trades | p. 185 |
Treasury Bond Relative Value-Par Curve | p. 191 |
Other Treasury Relative Value Trades | p. 193 |
Summary | p. 194 |
Hedging Risks in Interest Rate Products | p. 197 |
Principles of Hedging | p. 198 |
Choices of Instruments for Hedging | p. 202 |
Calculating Hedge Ratios | p. 210 |
Yield Betas | p. 215 |
Convexity Hedging | p. 218 |
Summary | p. 223 |
Trading Swap Spreads | p. 225 |
How Swap Spreads Work | p. 225 |
Why Trade Swap Spreads? | p. 230 |
Directionality of Swap Spreads to Yields | p. 240 |
Futures Asset Swaps | p. 241 |
Spread Curve Trades | p. 243 |
Summary | p. 245 |
Interest Rate Options and Trading Volatility | p. 247 |
Option Pricing and Fundamentals | p. 249 |
Modifications for the Interest Rate Markets | p. 254 |
Quoting Volatility | p. 256 |
Measuring Risks in Option Positions | p. 257 |
Put/Call Parity | p. 266 |
Implied and Realized Volatility | p. 268 |
Skew | p. 270 |
Delta Hedging | p. 270 |
Interest Rate Options | p. 275 |
Embedded Options and Hedging | p. 280 |
More Exotic Structures | p. 283 |
Yield Curve Spread Options | p. 284 |
Forward Volatility | p. 285 |
Volatility Trading | p. 286 |
Interest Rate Skew | p. 293 |
Volatility Spread Trades | p. 294 |
Caps versus Swaptions | p. 297 |
Summary | p. 298 |
Treasury Futures Basis and Rolls | p. 299 |
The Futures Delivery Option | p. 299 |
Calculating the Delivery Option Value | p. 309 |
Option-Adjusted and Empirical Duration | p. 311 |
Treasury Futures Rolls | p. 313 |
Summary | p. 318 |
Conditional Trades | p. 319 |
Conditional Curve Trades | p. 320 |
Conditional Spread Trades | p. 324 |
Summary | p. 328 |
References | p. 329 |
About the Author | p. 331 |
About the Web Site | p. 333 |
Index | p. 335 |
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