{"product_id":"fixedincome-securities-9780470852774","title":"FixedIncome Securities","description":"\u003cb\u003eBook Synopsis\u003c\/b\u003e\u003cbr\u003eThis textbook will be designed for fixed--incomesecurities courses taught on MSc Finance and MBAcourses. There is currently no suitable text thatoffers a 'Hull--type' book for the fixed income studentmarket. This book aims to fill this need. The bookwill contain numerous worked examples, excelspreadsheets, with a building block approachthroughout.\u003cbr\u003e\u003cbr\u003e\u003cb\u003eTable of Contents\u003c\/b\u003e\u003cbr\u003e\u003cp\u003eAbout the Authors xix\u003c\/p\u003e \u003cp\u003ePreface xxi\u003c\/p\u003e \u003cp\u003eAcknowledgments xxv\u003c\/p\u003e \u003cp\u003eNotation xxvii\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePart I Investment Environment\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e1 Bonds and Money-Market Instruments 3\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e1.1 Bonds 3\u003c\/p\u003e \u003cp\u003e1.1.1 General Characteristics of Bonds 3\u003c\/p\u003e \u003cp\u003e1.1.2 Bonds by Issuers 17\u003c\/p\u003e \u003cp\u003e1.2 Money-Market Instruments 25\u003c\/p\u003e \u003cp\u003e1.2.1 Definition 25\u003c\/p\u003e \u003cp\u003e1.2.2 The Role of the Central Bank 25\u003c\/p\u003e \u003cp\u003e1.2.3 T-Bills 26\u003c\/p\u003e \u003cp\u003e1.2.4 Certificates of Deposit 28\u003c\/p\u003e \u003cp\u003e1.2.5 Bankers’ Acceptances 29\u003c\/p\u003e \u003cp\u003e1.2.6 Commercial Papers 29\u003c\/p\u003e \u003cp\u003e1.2.7 Interbank Deposits 30\u003c\/p\u003e \u003cp\u003e1.2.8 Repo and Reverse Repo Market Instruments 30\u003c\/p\u003e \u003cp\u003e1.3 End of Chapter Summary 32\u003c\/p\u003e \u003cp\u003e1.4 References and Further Reading 33\u003c\/p\u003e \u003cp\u003e1.4.1 Books and Papers 33\u003c\/p\u003e \u003cp\u003e1.4.2 Websites and Others 33\u003c\/p\u003e \u003cp\u003e1.5 Problems 34\u003c\/p\u003e \u003cp\u003e1.5.1 Problems on Bonds 34\u003c\/p\u003e \u003cp\u003e1.5.2 Problems on Money-Market Instruments 36\u003c\/p\u003e \u003cp\u003e1.6 Appendix: Sector Breakdown of the Euro, the UK and the Japan Corporate Bond Markets 37\u003c\/p\u003e \u003cp\u003e\u003cb\u003e2 Bond Prices and Yields 41\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e2.1 Introduction to Bond Pricing 41\u003c\/p\u003e \u003cp\u003e2.2 Present Value Formula 43\u003c\/p\u003e \u003cp\u003e2.2.1 Time-Value of Money 43\u003c\/p\u003e \u003cp\u003e2.2.2 The Mathematics of Discounting 43\u003c\/p\u003e \u003cp\u003e2.2.3 Nominal versus Real Interest Rates 45\u003c\/p\u003e \u003cp\u003e2.2.4 Time Basis and Compounding Frequency Conventions 46\u003c\/p\u003e \u003cp\u003e2.2.5 Continuous Compounding 47\u003c\/p\u003e \u003cp\u003e2.3 Taxonomy of Rates 49\u003c\/p\u003e \u003cp\u003e2.3.1 Coupon Rate and Current Yield 49\u003c\/p\u003e \u003cp\u003e2.3.2 Yield to Maturity 49\u003c\/p\u003e \u003cp\u003e2.3.3 Spot Zero-Coupon (or Discount) Rate 51\u003c\/p\u003e \u003cp\u003e2.3.4 Forward Rates 52\u003c\/p\u003e \u003cp\u003e2.3.5 Bond Par Yield 54\u003c\/p\u003e \u003cp\u003e2.4 End of Chapter Summary 54\u003c\/p\u003e \u003cp\u003e2.5 References and Further Reading 54\u003c\/p\u003e \u003cp\u003e2.6 Problems 55\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePart II Term Structure of Interest Rates\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e3 Empirical Properties and Classical Theories of the Term Structure 63\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e3.1 Definition and Properties of the Term Structure 63\u003c\/p\u003e \u003cp\u003e3.1.1 What Kind of Shape Can It Take? 65\u003c\/p\u003e \u003cp\u003e3.1.2 How Does It Evolve over Time? 68\u003c\/p\u003e \u003cp\u003e3.2 Classical Theories of the Term Structure 81\u003c\/p\u003e \u003cp\u003e3.2.1 The Pure Expectations Theory 82\u003c\/p\u003e \u003cp\u003e3.2.2 The Pure Risk Premium Theory 83\u003c\/p\u003e \u003cp\u003e3.2.3 The Market Segmentation Theory 85\u003c\/p\u003e \u003cp\u003e3.2.4 The Biased Expectations Theory: An Integrated Approach 86\u003c\/p\u003e \u003cp\u003e3.2.5 Illustration and Empirical Validation 86\u003c\/p\u003e \u003cp\u003e3.2.6 Summary and Extensions 87\u003c\/p\u003e \u003cp\u003e3.3 End of Chapter Summary 88\u003c\/p\u003e \u003cp\u003e3.4 References and Further Reading 89\u003c\/p\u003e \u003cp\u003e3.4.1 On the Empirical Behavior of the Yield Curve 89\u003c\/p\u003e \u003cp\u003e3.4.2 On the Principal Component Analysis of the Yield Curve 90\u003c\/p\u003e \u003cp\u003e3.4.3 On the Classical Theories of the Term Structure of Interest Rates 90\u003c\/p\u003e \u003cp\u003e3.5 Problems 91\u003c\/p\u003e \u003cp\u003e\u003cb\u003e4 Deriving the Zero-Coupon Yield Curve 96\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e4.1 Deriving the Nondefault Treasury Zero-Coupon Yield Curve 96\u003c\/p\u003e \u003cp\u003e4.1.1 How to Select a Basket of Bonds? 96\u003c\/p\u003e \u003cp\u003e4.1.2 Direct Methods 97\u003c\/p\u003e \u003cp\u003e4.1.3 Indirect Methods 103\u003c\/p\u003e \u003cp\u003e4.2 Deriving the Interbank Zero-Coupon Rate Curve 130\u003c\/p\u003e \u003cp\u003e4.2.1 How to Select the Basket of Instruments? 130\u003c\/p\u003e \u003cp\u003e4.2.2 Interpolation Methods 132\u003c\/p\u003e \u003cp\u003e4.2.3 Least Squares Methods Based on Rates 132\u003c\/p\u003e \u003cp\u003e4.2.4 Least Squares Methods Based on Prices 133\u003c\/p\u003e \u003cp\u003e4.3 Deriving Credit Spread Term Structures 136\u003c\/p\u003e \u003cp\u003e4.3.1 Disjoint Methods 136\u003c\/p\u003e \u003cp\u003e4.3.2 Joint Methods 137\u003c\/p\u003e \u003cp\u003e4.4 End of Chapter Summary 142\u003c\/p\u003e \u003cp\u003e4.5 References and Further Reading 144\u003c\/p\u003e \u003cp\u003e4.6 Problems 146\u003c\/p\u003e \u003cp\u003e4.7 Appendix: A Useful Modified Newton’s Algorithm 155\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePart III Hedging Interest-Rate Risk\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e5 Hedging Interest-Rate Risk with Duration 163\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e5.1 Basics of Interest-Rate Risk: Qualitative Insights 163\u003c\/p\u003e \u003cp\u003e5.1.1 The Five Theorems of Bond Pricing 163\u003c\/p\u003e \u003cp\u003e5.1.2 Reinvestment Risk 164\u003c\/p\u003e \u003cp\u003e5.1.3 Capital Gain Risk 165\u003c\/p\u003e \u003cp\u003e5.1.4 Qualifying Interest-Rate Risk 166\u003c\/p\u003e \u003cp\u003e5.2 Hedging with Duration 167\u003c\/p\u003e \u003cp\u003e5.2.1 Using a One-Order Taylor Expansion 167\u003c\/p\u003e \u003cp\u003e5.2.2 Duration, $Duration and Modified Duration 170\u003c\/p\u003e \u003cp\u003e5.2.3 How to Hedge in Practice? 173\u003c\/p\u003e \u003cp\u003e5.3 End of Chapter Summary 175\u003c\/p\u003e \u003cp\u003e5.4 References and Further Reading 176\u003c\/p\u003e \u003cp\u003e5.4.1 Books 176\u003c\/p\u003e \u003cp\u003e5.4.2 Papers 176\u003c\/p\u003e \u003cp\u003e5.5 Problems 177\u003c\/p\u003e \u003cp\u003e\u003cb\u003e6 Beyond Duration 182\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e6.1 Relaxing the Assumption of a Small Shift 182\u003c\/p\u003e \u003cp\u003e6.1.1 Using a Second-Order Taylor Expansion 182\u003c\/p\u003e \u003cp\u003e6.1.2 Properties of Convexity 185\u003c\/p\u003e \u003cp\u003e6.1.3 Hedging Method 187\u003c\/p\u003e \u003cp\u003e6.2 Relaxing the Assumption of a Parallel Shift 188\u003c\/p\u003e \u003cp\u003e6.2.1 A Common Principle 188\u003c\/p\u003e \u003cp\u003e6.2.2 Regrouping Risk Factors through a Principal Component Analysis 192\u003c\/p\u003e \u003cp\u003e6.2.3 Hedging Using a Three-Factor Model of the Yield Curve 195\u003c\/p\u003e \u003cp\u003e6.3 End of Chapter Summary 199\u003c\/p\u003e \u003cp\u003e6.4 References and Further Reading 200\u003c\/p\u003e \u003cp\u003e6.5 Problems 201\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePart IV Investment Strategies\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e7 Passive Fixed-Income Portfolio Management 213\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e7.1 Straightforward Replication 213\u003c\/p\u003e \u003cp\u003e7.2 Replication by Stratified Sampling 214\u003c\/p\u003e \u003cp\u003e7.3 Tracking-Error Minimization 216\u003c\/p\u003e \u003cp\u003e7.3.1 Optimization Procedure 216\u003c\/p\u003e \u003cp\u003e7.3.2 Bond Return Covariance Matrix Estimation 217\u003c\/p\u003e \u003cp\u003e7.4 Factor-Based Replication 226\u003c\/p\u003e \u003cp\u003e7.5 Derivatives-Based Replication 229\u003c\/p\u003e \u003cp\u003e7.6 Pros and Cons of Stratified Sampling versus Tracking-Error Minimization 230\u003c\/p\u003e \u003cp\u003e7.7 End of Chapter Summary 230\u003c\/p\u003e \u003cp\u003e7.8 References and Further Reading 231\u003c\/p\u003e \u003cp\u003e7.8.1 Books and Papers 231\u003c\/p\u003e \u003cp\u003e7.8.2 Websites 231\u003c\/p\u003e \u003cp\u003e7.9 Problems 231\u003c\/p\u003e \u003cp\u003e\u003cb\u003e8 Active Fixed-Income Portfolio Management 233\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e8.1 Market Timing: Trading on Interest-Rate Predictions 233\u003c\/p\u003e \u003cp\u003e8.1.1 Timing Bets on No Change in the Yield Curve or “Riding the Yield Curve” 234\u003c\/p\u003e \u003cp\u003e8.1.2 Timing Bets on Interest-Rate Level 236\u003c\/p\u003e \u003cp\u003e8.1.3 Timing Bets on Specific Changes in the Yield Curve 238\u003c\/p\u003e \u003cp\u003e8.1.4 Scenario Analysis 251\u003c\/p\u003e \u003cp\u003e8.1.5 Active Fixed-Income Style Allocation Decisions 255\u003c\/p\u003e \u003cp\u003e8.2 Trading on Market Inefficiencies 268\u003c\/p\u003e \u003cp\u003e8.2.1 Trading within a Given Market: The Bond Relative Value Analysis 269\u003c\/p\u003e \u003cp\u003e8.2.2 Trading across Markets: Spread and Convergence Trades 276\u003c\/p\u003e \u003cp\u003e8.3 End of Chapter Summary 282\u003c\/p\u003e \u003cp\u003e8.4 References and Further Reading 283\u003c\/p\u003e \u003cp\u003e8.4.1 On Active Fixed-Income Strategies 283\u003c\/p\u003e \u003cp\u003e8.4.2 On Active Asset Allocation Decisions 284\u003c\/p\u003e \u003cp\u003e8.4.3 Others 286\u003c\/p\u003e \u003cp\u003e8.5 Problems 286\u003c\/p\u003e \u003cp\u003e\u003cb\u003e9 Performance Measurement on Fixed-Income Portfolios 293\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e9.1 Return Measures 293\u003c\/p\u003e \u003cp\u003e9.1.1 Arithmetic Rate of Return 293\u003c\/p\u003e \u003cp\u003e9.1.2 Geometric Rate of Return 294\u003c\/p\u003e \u003cp\u003e9.2 Risk-Adjusted Performance Evaluation 295\u003c\/p\u003e \u003cp\u003e9.2.1 Absolute Risk-Adjusted Performance Evaluation 296\u003c\/p\u003e \u003cp\u003e9.2.2 Relative Risk-Adjusted Performance Evaluation 299\u003c\/p\u003e \u003cp\u003e9.3 Application of Style Analysis to Performance Evaluation of Bond Portfolio Managers: An Example 309\u003c\/p\u003e \u003cp\u003e9.3.1 Alpha Analysis 310\u003c\/p\u003e \u003cp\u003e9.3.2 Passive Versus Active Managers 313\u003c\/p\u003e \u003cp\u003e9.4 End of Chapter Summary 314\u003c\/p\u003e \u003cp\u003e9.5 References and Further Reading 315\u003c\/p\u003e \u003cp\u003e9.5.1 Books and Papers 315\u003c\/p\u003e \u003cp\u003e9.5.2 Websites 316\u003c\/p\u003e \u003cp\u003e9.6 Problems 316\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePart V Swaps and Futures\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e10 Swaps 325\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e10.1 Description of Swaps 325\u003c\/p\u003e \u003cp\u003e10.1.1 Definition 325\u003c\/p\u003e \u003cp\u003e10.1.2 Terminology and Conventions 325\u003c\/p\u003e \u003cp\u003e10.2 Pricing and Market Quotes 326\u003c\/p\u003e \u003cp\u003e10.2.1 Pricing of Swaps 326\u003c\/p\u003e \u003cp\u003e10.2.2 Market Quotes 333\u003c\/p\u003e \u003cp\u003e10.3 Uses of Swaps 334\u003c\/p\u003e \u003cp\u003e10.3.1 Optimizing the Financial Conditions of a Debt 335\u003c\/p\u003e \u003cp\u003e10.3.2 Converting the Financial Conditions of a Debt 336\u003c\/p\u003e \u003cp\u003e10.3.3 Creating New Assets Using Swaps 337\u003c\/p\u003e \u003cp\u003e10.3.4 Hedging Interest-Rate Risk Using Swaps 339\u003c\/p\u003e \u003cp\u003e10.4 Nonplain Vanilla Swaps 342\u003c\/p\u003e \u003cp\u003e10.4.1 Accrediting, Amortizing and Roller Coaster Swaps 342\u003c\/p\u003e \u003cp\u003e10.4.2 Basis Swap 343\u003c\/p\u003e \u003cp\u003e10.4.3 Constant Maturity Swap and Constant Maturity Treasury Swap 343\u003c\/p\u003e \u003cp\u003e10.4.4 Forward-Starting Swap 344\u003c\/p\u003e \u003cp\u003e10.4.5 Inflation-Linked Swap 344\u003c\/p\u003e \u003cp\u003e10.4.6 Libor in Arrears Swap 344\u003c\/p\u003e \u003cp\u003e10.4.7 Yield-Curve Swap 345\u003c\/p\u003e \u003cp\u003e10.4.8 Zero-Coupon Swap 345\u003c\/p\u003e \u003cp\u003e10.5 End of Chapter Summary 346\u003c\/p\u003e \u003cp\u003e10.6 References and Further Reading 346\u003c\/p\u003e \u003cp\u003e10.6.1 Books and Papers 346\u003c\/p\u003e \u003cp\u003e10.6.2 Websites 347\u003c\/p\u003e \u003cp\u003e10.7 Problems 347\u003c\/p\u003e \u003cp\u003e\u003cb\u003e11 Forwards and Futures 353\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e11.1 Definition 353\u003c\/p\u003e \u003cp\u003e11.2 Terminology, Conventions and Market Quotes 354\u003c\/p\u003e \u003cp\u003e11.2.1 Terminology and Conventions 354\u003c\/p\u003e \u003cp\u003e11.2.2 Quotes 356\u003c\/p\u003e \u003cp\u003e11.3 Margin Requirements and the Role of the Clearing House 358\u003c\/p\u003e \u003cp\u003e11.4 Conversion Factor and the Cheapest-to-Deliver Bond 359\u003c\/p\u003e \u003cp\u003e11.4.1 The Cheapest to Deliver on the Repartition Date 360\u003c\/p\u003e \u003cp\u003e11.4.2 The Cheapest to Deliver before the Repartition Date 361\u003c\/p\u003e \u003cp\u003e11.5 Pricing of Forwards and Futures 362\u003c\/p\u003e \u003cp\u003e11.5.1 Forward-Spot Parity or How to Price a Forward Contract? 362\u003c\/p\u003e \u003cp\u003e11.5.2 The Forward Contract Payoff 364\u003c\/p\u003e \u003cp\u003e11.5.3 Relation between Forward and Futures Prices 365\u003c\/p\u003e \u003cp\u003e11.6 Uses of Forwards and Futures 365\u003c\/p\u003e \u003cp\u003e11.6.1 Pure Speculation with Leverage Effect 365\u003c\/p\u003e \u003cp\u003e11.6.2 Fixing Today the Financial Conditions of a Loan or Investment in the Future 366\u003c\/p\u003e \u003cp\u003e11.6.3 Detecting Riskless Arbitrage Opportunities Using Futures 367\u003c\/p\u003e \u003cp\u003e11.6.4 Hedging Interest-Rate Risk Using Futures 368\u003c\/p\u003e \u003cp\u003e11.7 End of Chapter Summary 370\u003c\/p\u003e \u003cp\u003e11.8 References and Further Reading 371\u003c\/p\u003e \u003cp\u003e11.8.1 Books and Papers 371\u003c\/p\u003e \u003cp\u003e11.8.2 Websites of Futures Markets and of the Futures Industry Association 371\u003c\/p\u003e \u003cp\u003e11.9 Problems 372\u003c\/p\u003e \u003cp\u003e11.10 Appendix: Forward and Futures Prices Are Identical When Interest Rates Are Constant 375\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePart VI Modeling The Term Structure of Interest Rates and Credit Spreads\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e12 Modeling the Yield Curve Dynamics 381\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e12.1 The Binomial Interest-Rate Tree Methodology 382\u003c\/p\u003e \u003cp\u003e12.1.1 Building an Interest-Rate Tree 382\u003c\/p\u003e \u003cp\u003e12.1.2 Calibrating an Interest-Rate Tree 384\u003c\/p\u003e \u003cp\u003e12.2 Continuous-Time Models 387\u003c\/p\u003e \u003cp\u003e12.2.1 Single-Factor Models 388\u003c\/p\u003e \u003cp\u003e12.2.2 Multifactor Models 392\u003c\/p\u003e \u003cp\u003e12.3 Arbitrage Models 396\u003c\/p\u003e \u003cp\u003e12.3.1 A Discrete-Time Example: Ho and Lee’s Binomial Lattice 396\u003c\/p\u003e \u003cp\u003e12.3.2 Arbitrage Models in Continuous Time 401\u003c\/p\u003e \u003cp\u003e12.4 End of Chapter Summary 406\u003c\/p\u003e \u003cp\u003e12.5 References and Further Reading 407\u003c\/p\u003e \u003cp\u003e12.6 Problems 411\u003c\/p\u003e \u003cp\u003e12.7 Appendix 1: The Hull and White Trinomial Lattice 413\u003c\/p\u003e \u003cp\u003e12.7.1 Discretizing the Short Rate 413\u003c\/p\u003e \u003cp\u003e12.7.2 Calibrating the Lattice to the Current Spot Yield Curve 416\u003c\/p\u003e \u003cp\u003e12.7.3 Option Pricing 419\u003c\/p\u003e \u003cp\u003e12.8 Appendix 2: An Introduction to Stochastic Processes in Continuous Time 420\u003c\/p\u003e \u003cp\u003e12.8.1 Brownian Motion 420\u003c\/p\u003e \u003cp\u003e12.8.2 Stochastic Integral 423\u003c\/p\u003e \u003cp\u003e12.8.3 Stochastic Differential Equations (SDE) 425\u003c\/p\u003e \u003cp\u003e12.8.4 Asset Price Process 426\u003c\/p\u003e \u003cp\u003e12.8.5 Representation of Brownian Martingales 426\u003c\/p\u003e \u003cp\u003e12.8.6 Continuous-Time Asset Pricing 427\u003c\/p\u003e \u003cp\u003e12.8.7 Feynman–Kac Formula 431\u003c\/p\u003e \u003cp\u003e12.8.8 Application to Equilibrium Models of the Term Structure 432\u003c\/p\u003e \u003cp\u003e\u003cb\u003e13 Modeling the Credit Spreads Dynamics 437\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e13.1 Analyzing Credit Spreads 438\u003c\/p\u003e \u003cp\u003e13.1.1 Ratings 438\u003c\/p\u003e \u003cp\u003e13.1.2 Default Probability 440\u003c\/p\u003e \u003cp\u003e13.1.3 The Severity of Default 441\u003c\/p\u003e \u003cp\u003e13.2 Modeling Credit Spreads 441\u003c\/p\u003e \u003cp\u003e13.2.1 Structural Models 442\u003c\/p\u003e \u003cp\u003e13.2.2 Subsequent Models 446\u003c\/p\u003e \u003cp\u003e13.2.3 Reduced-Form Models 448\u003c\/p\u003e \u003cp\u003e13.2.4 Historical versus Risk-Adjusted Probability of Default 450\u003c\/p\u003e \u003cp\u003e13.3 End of Chapter Summary 452\u003c\/p\u003e \u003cp\u003e13.4 References and Further Reading 453\u003c\/p\u003e \u003cp\u003e13.4.1 Books and Papers 453\u003c\/p\u003e \u003cp\u003e13.4.2 Websites 454\u003c\/p\u003e \u003cp\u003e13.5 Problems 455\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePart VII Plain Vanilla Options and More Exotic Derivatives\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e14 Bonds with Embedded Options and Options on Bonds 459\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e14.1 Callable and Putable Bonds 459\u003c\/p\u003e \u003cp\u003e14.1.1 Institutional Aspects 459\u003c\/p\u003e \u003cp\u003e14.1.2 Pricing 460\u003c\/p\u003e \u003cp\u003e14.1.3 OAS Analysis 467\u003c\/p\u003e \u003cp\u003e14.1.4 Effective Duration and Convexity 468\u003c\/p\u003e \u003cp\u003e14.2 Convertible Bonds 470\u003c\/p\u003e \u003cp\u003e14.2.1 Institutional Aspects 470\u003c\/p\u003e \u003cp\u003e14.2.2 Valuation of Convertible Bonds 473\u003c\/p\u003e \u003cp\u003e14.2.3 Convertible Arbitrage 479\u003c\/p\u003e \u003cp\u003e14.3 Options on Bonds 482\u003c\/p\u003e \u003cp\u003e14.3.1 Definition 482\u003c\/p\u003e \u003cp\u003e14.3.2 Uses 483\u003c\/p\u003e \u003cp\u003e14.3.3 Pricing 487\u003c\/p\u003e \u003cp\u003e14.4 End of Chapter Summary 491\u003c\/p\u003e \u003cp\u003e14.5 References and Further Reading 492\u003c\/p\u003e \u003cp\u003e14.5.1 On Callable and Putable Bonds 492\u003c\/p\u003e \u003cp\u003e14.5.2 On Convertible Bonds 492\u003c\/p\u003e \u003cp\u003e14.5.3 On Options on Bonds 493\u003c\/p\u003e \u003cp\u003e14.6 Problems 494\u003c\/p\u003e \u003cp\u003e14.7 Appendix: Bond Option Prices in the Hull and White (1990) Model 498\u003c\/p\u003e \u003cp\u003e14.7.1 Call on Zero-Coupon Bond 499\u003c\/p\u003e \u003cp\u003e14.7.2 Call on Coupon Bond 499\u003c\/p\u003e \u003cp\u003e\u003cb\u003e15 Options on Futures, Caps, Floors and Swaptions 500\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e15.1 Options on Futures 500\u003c\/p\u003e \u003cp\u003e15.1.1 Definition and Terminology 500\u003c\/p\u003e \u003cp\u003e15.1.2 Pricing and Hedging Options on Futures 502\u003c\/p\u003e \u003cp\u003e15.1.3 Market Quotes 505\u003c\/p\u003e \u003cp\u003e15.1.4 Uses of Futures Options 508\u003c\/p\u003e \u003cp\u003e15.2 Caps, Floors and Collars 508\u003c\/p\u003e \u003cp\u003e15.2.1 Definition and Terminology 508\u003c\/p\u003e \u003cp\u003e15.2.2 Pricing and Hedging Caps, Floors and Collars 510\u003c\/p\u003e \u003cp\u003e15.2.3 Market Quotes 514\u003c\/p\u003e \u003cp\u003e15.2.4 Uses of Caps, Floors and Collars 516\u003c\/p\u003e \u003cp\u003e15.3 Swaptions 520\u003c\/p\u003e \u003cp\u003e15.3.1 Definition and Terminology 520\u003c\/p\u003e \u003cp\u003e15.3.2 Pricing and Hedging Swaptions 521\u003c\/p\u003e \u003cp\u003e15.3.3 Market Quotes 526\u003c\/p\u003e \u003cp\u003e15.3.4 Uses of Swaptions 526\u003c\/p\u003e \u003cp\u003e15.4 End of Chapter Summary 527\u003c\/p\u003e \u003cp\u003e15.5 References and Further Reading 528\u003c\/p\u003e \u003cp\u003e15.5.1 Books and Papers 528\u003c\/p\u003e \u003cp\u003e15.5.2 Websites 529\u003c\/p\u003e \u003cp\u003e15.6 Problems 529\u003c\/p\u003e \u003cp\u003e15.7 Appendix 1: Proof of the Cap and Floor Formulas in the Black (1976) Model 534\u003c\/p\u003e \u003cp\u003e15.8 Appendix 2: Proof of the Swaption Formula in the Black (1976) Model 535\u003c\/p\u003e \u003cp\u003e15.9 Appendix 3: Forward and Futures Option Prices Written on T-Bond and Libor in the Hull and White (1990) Model 536\u003c\/p\u003e \u003cp\u003e15.9.1 Options on Forward Contracts 536\u003c\/p\u003e \u003cp\u003e15.9.2 Options on Futures Contracts 537\u003c\/p\u003e \u003cp\u003e15.10 Appendix 4: Cap, Floor and Swaption Prices in the Hull and White (1990) Model 539\u003c\/p\u003e \u003cp\u003e15.10.1 Cap and Floor 539\u003c\/p\u003e \u003cp\u003e15.10.2 Swaption 540\u003c\/p\u003e \u003cp\u003e15.11 Appendix 5: Market Models (BGM\/Jamshidian Approach) 541\u003c\/p\u003e \u003cp\u003e15.11.1 Why Define New Variables? 541\u003c\/p\u003e \u003cp\u003e15.11.2 Building New Variables 542\u003c\/p\u003e \u003cp\u003e15.11.3 The Dynamics of \u003ci\u003eL(t, θ) \u003c\/i\u003eand \u003ci\u003eK(t, t \u003c\/i\u003e+ \u003ci\u003eθ) \u003c\/i\u003e543\u003c\/p\u003e \u003cp\u003e15.11.4 Pricing of Caps 545\u003c\/p\u003e \u003cp\u003e15.11.5 Calibration of the Model 546\u003c\/p\u003e \u003cp\u003e\u003cb\u003e16 Exotic Options and Credit Derivatives 548\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e16.1 Interest-Rate Exotic Options 548\u003c\/p\u003e \u003cp\u003e16.1.1 Barrier Caps and Floors 548\u003c\/p\u003e \u003cp\u003e16.1.2 Bounded Caps, Floors, Barrier Caps and Floors 550\u003c\/p\u003e \u003cp\u003e16.1.3 Cancelable Swaps 551\u003c\/p\u003e \u003cp\u003e16.1.4 Captions and Floortions 551\u003c\/p\u003e \u003cp\u003e16.1.5 Choosercaps and Flexicaps-and-Floors 551\u003c\/p\u003e \u003cp\u003e16.1.6 Contingent Premium Caps and Floors 553\u003c\/p\u003e \u003cp\u003e16.1.7 Extendible Swaps 554\u003c\/p\u003e \u003cp\u003e16.1.8 Incremental Fixed Swaps 554\u003c\/p\u003e \u003cp\u003e16.1.9 Index Amortizing Bonds and Swaps 555\u003c\/p\u003e \u003cp\u003e16.1.10 Marked-to-Market Caps 557\u003c\/p\u003e \u003cp\u003e16.1.11 Moving Average Caps and Floors 557\u003c\/p\u003e \u003cp\u003e16.1.12 N-Caps and Floors 558\u003c\/p\u003e \u003cp\u003e16.1.13 Q-Caps and Floors 558\u003c\/p\u003e \u003cp\u003e16.1.14 Range Accrual Swaps 559\u003c\/p\u003e \u003cp\u003e16.1.15 Ratchet Caps and Floors 560\u003c\/p\u003e \u003cp\u003e16.1.16 Reflex Caps and Floors 561\u003c\/p\u003e \u003cp\u003e16.1.17 Rental Caps and Floors 562\u003c\/p\u003e \u003cp\u003e16.1.18 Rolling Caps and Floors 562\u003c\/p\u003e \u003cp\u003e16.1.19 Spread Options 563\u003c\/p\u003e \u003cp\u003e16.1.20 Subsidized Swaps 563\u003c\/p\u003e \u003cp\u003e16.1.21 Pricing and Hedging Interest-Rate Exotic Options 565\u003c\/p\u003e \u003cp\u003e16.2 Credit Derivatives 565\u003c\/p\u003e \u003cp\u003e16.2.1 The Significance of Credit Derivatives 565\u003c\/p\u003e \u003cp\u003e16.2.2 Types of Credit Derivatives 567\u003c\/p\u003e \u003cp\u003e16.3 End of Chapter Summary 575\u003c\/p\u003e \u003cp\u003e16.4 References and Further Reading 575\u003c\/p\u003e \u003cp\u003e16.4.1 On Interest-Rate Exotic Options 575\u003c\/p\u003e \u003cp\u003e16.4.2 On Credit Derivatives 576\u003c\/p\u003e \u003cp\u003e16.4.3 On Numerical Methods (See the Appendix 2) 576\u003c\/p\u003e \u003cp\u003e16.4.4 Websites and Others 577\u003c\/p\u003e \u003cp\u003e16.5 Problems 577\u003c\/p\u003e \u003cp\u003e16.6 Appendix 1: Pricing and Hedging Barrier Caps and Floors in the Black Model 580\u003c\/p\u003e \u003cp\u003e16.6.1 Barrier Cap Formulas 580\u003c\/p\u003e \u003cp\u003e16.6.2 Barrier Floor Formulas 581\u003c\/p\u003e \u003cp\u003e16.6.3 Barrier Cap and Floor Greeks 581\u003c\/p\u003e \u003cp\u003e16.7 Appendix 2: Numerical Methods 583\u003c\/p\u003e \u003cp\u003e16.7.1 Monte Carlo Simulations 583\u003c\/p\u003e \u003cp\u003e16.7.2 Finite-Difference Methods 585\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePart VIII Securitization\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e17 Mortgage-Backed Securities 593\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e17.1 Description of MBSs 593\u003c\/p\u003e \u003cp\u003e17.1.1 Definition 593\u003c\/p\u003e \u003cp\u003e17.1.2 The Amortization Mechanism 593\u003c\/p\u003e \u003cp\u003e17.1.3 The Prepayment Feature 596\u003c\/p\u003e \u003cp\u003e17.1.4 Typology of MBS 596\u003c\/p\u003e \u003cp\u003e17.2 Market Quotes and Pricing 598\u003c\/p\u003e \u003cp\u003e17.2.1 Market Quotes 599\u003c\/p\u003e \u003cp\u003e17.2.2 Pricing of MBS 600\u003c\/p\u003e \u003cp\u003e17.3 End of Chapter Summary 603\u003c\/p\u003e \u003cp\u003e17.4 References and Further Reading 604\u003c\/p\u003e \u003cp\u003e17.4.1 Books and Papers 604\u003c\/p\u003e \u003cp\u003e17.4.2 Websites 605\u003c\/p\u003e \u003cp\u003e17.5 Problems 605\u003c\/p\u003e \u003cp\u003e\u003cb\u003e18 Asset-Backed Securities 607\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e18.1 Description of ABSs 607\u003c\/p\u003e \u003cp\u003e18.1.1 Definition 607\u003c\/p\u003e \u003cp\u003e18.1.2 Credit Enhancement 607\u003c\/p\u003e \u003cp\u003e18.1.3 Cash-Flow Structure 608\u003c\/p\u003e \u003cp\u003e18.2 Market Quotes and Pricing 610\u003c\/p\u003e \u003cp\u003e18.3 CAT Bonds and CAT Derivatives 612\u003c\/p\u003e \u003cp\u003e18.4 End of Chapter Summary 615\u003c\/p\u003e \u003cp\u003e18.5 References and Further Reading 615\u003c\/p\u003e \u003cp\u003e18.6 Problems 616\u003c\/p\u003e \u003cp\u003eSubject Index 617\u003c\/p\u003e \u003cp\u003eAuthor Index 629\u003c\/p\u003e","brand":"John Wiley \u0026 Sons Inc","offers":[{"title":"Default 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