9780470572139

Introduction to Fixed Income Analytics : Relative Value Analysis, Risk Measures and Valuation

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  • ISBN13:

    9780470572139

  • ISBN10:

    0470572132

  • Edition: 2nd
  • Format: Hardcover
  • Copyright: 10/12/2010
  • Publisher: Wiley
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Summary

A comprehensive introduction to the key concepts of fixed income analyticsThe First Edition of Introduction to Fixed Income Analytics skillfully covered the fundamentals of this discipline and was the first book to tie Bloomberg screens into its analysis. Since it's publication over eight years ago, major changes have taken place in the markets.That's why authors Frank Fabozzi and Steven Mann have returned with a fully updated Second Edition. This reliable resource reflects current economic conditions, and offers additional chapters on risk value analysis and risk measures and valuation, as well as information on instruments like TIPS (treasury inflation protected securities). Offers insights into value-at-risk, relative value measures, convertible bond analysis, and much more Includes updated charts and descriptions of Bloomberg screen presentations Covers important analytical concepts used by portfolio managersUnderstanding fixed-income analytics is essential in today's dynamic financial environment. The Second Edition of Introduction to Fixed Income Analytics will help you build a solid foundation in this field.

Author Biography

FRANK J. FABOZZI, PhD, CFA, CPA, is Professor in the Practice of Finance and Becton Fellow at the Yale School of Management and Editor of the Journal of Portfolio Management. He is an Affiliated Professor at the University of Karlsruhe’s Institute of Statistics, Econometrics, and Mathematical Finance and on the Advisory Council for the Department of Operations Research and Financial Engineering at Princeton University.

STEVEN V. MANN, PhD, is Professor of Finance at the Moore School of Business, University of South Carolina. He has published over seventy articles in finance journals and many books on fixed income and derivatives topics, including The Global Money Markets, Measuring and Controlling Interest Rate and Credit Risk, Securities Finance (as a coeditor), and The Handbook of Fixed Income Securities (as an assistant editor). Mann is an active consultant to clients that include some of the largest investment/commercial banks in the world as well as a number of Fortune 500 companies.

Table of Contents

Prefacep. xiii
About the Authorsp. xv
Time Value of Moneyp. 1
Future Value of a Single Cash Flowp. 1
Present Value of a Single Cash Flowp. 4
Compounding/Discounting When Interest Is Paid More Than Annuallyp. 8
Future and Present Values of an Ordinary Annuityp. 10
Yield (Internal Rate of Return)p. 20
Concepts Presented in this Chapterp. 26
Appendix: Compounding and Discounting in Continuous Timep. 27
Questionsp. 31
Yield Curve Analysis: Spot Rates and Forward Ratesp. 33
A Bond Is a Package of Zero-Coupon Instrumentsp. 33
Theoretical Spot Ratesp. 34
Forward Ratesp. 44
Dynamics of the Yield Curvep. 57
Concepts Presented in this Chapterp. 60
Questionsp. 60
Day Count Conventions and Accrued Interestp. 63
Day Count Conventionsp. 63
Computing the Accrued Interestp. 74
Concepts Presented in this Chapterp. 76
Questionsp. 76
Valuation of Option-Free Bondsp. 77
General Principles of Valuationp. 77
Determining a Bond's Valuep. 80
The Price/Discount Rate Relationshipp. 84
Time Path of Bondp. 86
Valuing a Zero-Coupon Bondp. 90
Valuing a Bond Between Coupon Paymentsp. 90
Traditional Approach to Valuationp. 94
The Arbitrage-Free Valuation Approachp. 96
Concepts Presented in this Chapterp. 107
Questionsp. 108
Yield Measuresp. 109
Sources of Returnp. 109
Traditional Yield Measuresp. 113
Yield to Callp. 121
Yield to Putp. 123
Yield to Worstp. 123
Cash Flow Yieldp. 124
Portfolio Yield Measuresp. 125
Yield Measures for U.S. Treasury Billsp. 128
Yield Spread Measures Relative to a Spot Rate Curvep. 134
Concepts Presented in this Chapterp. 137
Appendix: Mathematics of the Internal Rate of Returnp. 138
Questionsp. 139
Analysis of Floating Rate Securitiesp. 141
General Features of Floatersp. 141
Valuing a Risky Floaterp. 150
Valuation of Floaters with Embedded Optionsp. 157
Margin Measuresp. 157
Concepts Presented in this Chapterp. 166
Questionsp. 167
Valuation of Bonds with Embedded Optionsp. 169
Overview of the Valuation of Bonds with Embedded Optionsp. 169
Option-Adjusted Spread and Option Costp. 170
Lattice Modelp. 172
Binomial Modelp. 175
Illustrationp. 196
Concepts Presented in this Chapterp. 198
Questionsp. 198
Cash Flow for Mortgage-Backed Securities and Amortizing Asset-Backed Securitiesp. 199
Cash Flow of Mortgage-Backed Securitiesp. 199
Amortizing Asset-Backed Securitiesp. 238
Concepts Presented in this Chapterp. 242
Questionsp. 244
Valuation of Mortgage-Backed and Asset-Backed Securitiesp. 247
Static Cash Flow Yield Analysisp. 247
Monte Carlo Simulation/OASp. 249
Concepts Presented in this Chapterp. 270
Questionsp. 270
Analysis of Convertible Bondsp. 273
General Characteristics of Convertible Bondsp. 273
Tools for Analyzing Convertiblesp. 276
Call and Put Featuresp. 278
Convertible Bond Arbitragep. 279
Other Types of Convertiblesp. 283
Concepts Presented in this Chapterp. 285
Questionsp. 285
Total Returnp. 287
Computing the Total Returnp. 287
OAS-Total Returnp. 290
Total Return to Maturityp. 291
Total Return for a Mortgage-Backed Securityp. 299
Portfolio Total Returnp. 301
Total Return Analysis for Multiple Scenariosp. 301
Concepts Presented in this Chapterp. 314
Questionsp. 314
Measuring Interest Rate Riskp. 317
The Full Valuation Approachp. 317
Price Volatility Characteristics of Bondsp. 324
Durationp. 334
Other Duration Measuresp. 350
Convexityp. 360
Price Value of a Basis Pointp. 365
The Importance of Yield Volatilityp. 367
Concepts Presented in this Chapterp. 369
Questionsp. 370
Value-at-Risk Measure and Extensionsp. 373
Value-at-Riskp. 373
Conditional Value-at-Riskp. 384
Concepts Presented in this Chapterp. 385
Questionsp. 386
Analysis of Inflation-Protected Bondsp. 387
Breakeven Inflation ratep. 388
Valuation of TIPSp. 389
Measuring Interest Rate Riskp. 394
Concepts Presented in this Chapterp. 397
Questionsp. 397
The Tools of Relative Value Analysisp. 399
How Portfolio Managers Add Valuep. 399
Yield Spreads over Swap and Treasury Curvesp. 400
Asset Swapsp. 403
Credit Default Swapsp. 410
Concepts Presented in this Chapterp. 413
Questionsp. 414
Analysis of Interest Rate Swapsp. 417
Description of an Interest Rate Swapp. 417
Interpreting a Swap Positionp. 419
Terminology, Conventions, and Market Quotesp. 421
Valuing Interest Rate Swapsp. 424
Primary Determinants of Swap Spreadsp. 440
Dollar Duration of a Swapp. 445
Concepts Presented in this Chapterp. 447
Questionsp. 447
Estimating Yield Volatilityp. 451
Historical Volatilityp. 451
Implied Volatilityp. 455
Forecasting Yield Volatilityp. 459
Concepts Presented in this Chapterp. 463
Questionsp. 463
Indexp. 465
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