Details

Fixed-Income Securities


Fixed-Income Securities

Valuation, Risk Management and Portfolio Strategies
The Wiley Finance Series 1. Aufl.

von: Lionel Martellini, Philippe Priaulet, Stéphane Priaulet

38,99 €

Verlag: Wiley
Format: PDF
Veröffentl.: 27.09.2005
ISBN/EAN: 9780470868225
Sprache: englisch
Anzahl Seiten: 672

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Beschreibungen

This textbook will be designed for fixed-income securities courses taught on MSc Finance and MBA courses. There is currently no suitable text that offers a 'Hull-type' book for the fixed income student market. This book aims to fill this need. The book will contain numerous worked examples, excel spreadsheets, with a building block approach throughout. A key feature of the book will be coverage of both traditional and alternative investment strategies in the fixed-income market, for example, the book will cover the modern strategies used by fixed-income hedge funds. <ul> <li>The text will be supported by a set of PowerPoint slides for use by the lecturer</li> <li>First textbook designed for students written on fixed-income securities - a growing market</li> <li>Contains numerous worked examples throughout</li> <li>Includes coverage of important topics often omitted in other books i.e. deriving the zero yield curve, deriving credit spreads, hedging and also covers interest rate and credit derivatives</li> </ul>
<p>About the Authors xix</p> <p>Preface xxi</p> <p>Acknowledgments xxv</p> <p>Notation xxvii</p> <p><b>Part I Investment Environment</b></p> <p><b>1 Bonds and Money-Market Instruments 3</b></p> <p>1.1 Bonds 3</p> <p>1.1.1 General Characteristics of Bonds 3</p> <p>1.1.2 Bonds by Issuers 17</p> <p>1.2 Money-Market Instruments 25</p> <p>1.2.1 Definition 25</p> <p>1.2.2 The Role of the Central Bank 25</p> <p>1.2.3 T-Bills 26</p> <p>1.2.4 Certificates of Deposit 28</p> <p>1.2.5 Bankers’ Acceptances 29</p> <p>1.2.6 Commercial Papers 29</p> <p>1.2.7 Interbank Deposits 30</p> <p>1.2.8 Repo and Reverse Repo Market Instruments 30</p> <p>1.3 End of Chapter Summary 32</p> <p>1.4 References and Further Reading 33</p> <p>1.4.1 Books and Papers 33</p> <p>1.4.2 Websites and Others 33</p> <p>1.5 Problems 34</p> <p>1.5.1 Problems on Bonds 34</p> <p>1.5.2 Problems on Money-Market Instruments 36</p> <p>1.6 Appendix: Sector Breakdown of the Euro, the UK and the Japan Corporate Bond Markets 37</p> <p><b>2 Bond Prices and Yields 41</b></p> <p>2.1 Introduction to Bond Pricing 41</p> <p>2.2 Present Value Formula 43</p> <p>2.2.1 Time-Value of Money 43</p> <p>2.2.2 The Mathematics of Discounting 43</p> <p>2.2.3 Nominal versus Real Interest Rates 45</p> <p>2.2.4 Time Basis and Compounding Frequency Conventions 46</p> <p>2.2.5 Continuous Compounding 47</p> <p>2.3 Taxonomy of Rates 49</p> <p>2.3.1 Coupon Rate and Current Yield 49</p> <p>2.3.2 Yield to Maturity 49</p> <p>2.3.3 Spot Zero-Coupon (or Discount) Rate 51</p> <p>2.3.4 Forward Rates 52</p> <p>2.3.5 Bond Par Yield 54</p> <p>2.4 End of Chapter Summary 54</p> <p>2.5 References and Further Reading 54</p> <p>2.6 Problems 55</p> <p><b>Part II Term Structure of Interest Rates</b></p> <p><b>3 Empirical Properties and Classical Theories of the Term Structure 63</b></p> <p>3.1 Definition and Properties of the Term Structure 63</p> <p>3.1.1 What Kind of Shape Can It Take? 65</p> <p>3.1.2 How Does It Evolve over Time? 68</p> <p>3.2 Classical Theories of the Term Structure 81</p> <p>3.2.1 The Pure Expectations Theory 82</p> <p>3.2.2 The Pure Risk Premium Theory 83</p> <p>3.2.3 The Market Segmentation Theory 85</p> <p>3.2.4 The Biased Expectations Theory: An Integrated Approach 86</p> <p>3.2.5 Illustration and Empirical Validation 86</p> <p>3.2.6 Summary and Extensions 87</p> <p>3.3 End of Chapter Summary 88</p> <p>3.4 References and Further Reading 89</p> <p>3.4.1 On the Empirical Behavior of the Yield Curve 89</p> <p>3.4.2 On the Principal Component Analysis of the Yield Curve 90</p> <p>3.4.3 On the Classical Theories of the Term Structure of Interest Rates 90</p> <p>3.5 Problems 91</p> <p><b>4 Deriving the Zero-Coupon Yield Curve 96</b></p> <p>4.1 Deriving the Nondefault Treasury Zero-Coupon Yield Curve 96</p> <p>4.1.1 How to Select a Basket of Bonds? 96</p> <p>4.1.2 Direct Methods 97</p> <p>4.1.3 Indirect Methods 103</p> <p>4.2 Deriving the Interbank Zero-Coupon Rate Curve 130</p> <p>4.2.1 How to Select the Basket of Instruments? 130</p> <p>4.2.2 Interpolation Methods 132</p> <p>4.2.3 Least Squares Methods Based on Rates 132</p> <p>4.2.4 Least Squares Methods Based on Prices 133</p> <p>4.3 Deriving Credit Spread Term Structures 136</p> <p>4.3.1 Disjoint Methods 136</p> <p>4.3.2 Joint Methods 137</p> <p>4.4 End of Chapter Summary 142</p> <p>4.5 References and Further Reading 144</p> <p>4.6 Problems 146</p> <p>4.7 Appendix: A Useful Modified Newton’s Algorithm 155</p> <p><b>Part III Hedging Interest-Rate Risk</b></p> <p><b>5 Hedging Interest-Rate Risk with Duration 163</b></p> <p>5.1 Basics of Interest-Rate Risk: Qualitative Insights 163</p> <p>5.1.1 The Five Theorems of Bond Pricing 163</p> <p>5.1.2 Reinvestment Risk 164</p> <p>5.1.3 Capital Gain Risk 165</p> <p>5.1.4 Qualifying Interest-Rate Risk 166</p> <p>5.2 Hedging with Duration 167</p> <p>5.2.1 Using a One-Order Taylor Expansion 167</p> <p>5.2.2 Duration, $Duration and Modified Duration 170</p> <p>5.2.3 How to Hedge in Practice? 173</p> <p>5.3 End of Chapter Summary 175</p> <p>5.4 References and Further Reading 176</p> <p>5.4.1 Books 176</p> <p>5.4.2 Papers 176</p> <p>5.5 Problems 177</p> <p><b>6 Beyond Duration 182</b></p> <p>6.1 Relaxing the Assumption of a Small Shift 182</p> <p>6.1.1 Using a Second-Order Taylor Expansion 182</p> <p>6.1.2 Properties of Convexity 185</p> <p>6.1.3 Hedging Method 187</p> <p>6.2 Relaxing the Assumption of a Parallel Shift 188</p> <p>6.2.1 A Common Principle 188</p> <p>6.2.2 Regrouping Risk Factors through a Principal Component Analysis 192</p> <p>6.2.3 Hedging Using a Three-Factor Model of the Yield Curve 195</p> <p>6.3 End of Chapter Summary 199</p> <p>6.4 References and Further Reading 200</p> <p>6.5 Problems 201</p> <p><b>Part IV Investment Strategies</b></p> <p><b>7 Passive Fixed-Income Portfolio Management 213</b></p> <p>7.1 Straightforward Replication 213</p> <p>7.2 Replication by Stratified Sampling 214</p> <p>7.3 Tracking-Error Minimization 216</p> <p>7.3.1 Optimization Procedure 216</p> <p>7.3.2 Bond Return Covariance Matrix Estimation 217</p> <p>7.4 Factor-Based Replication 226</p> <p>7.5 Derivatives-Based Replication 229</p> <p>7.6 Pros and Cons of Stratified Sampling versus Tracking-Error Minimization 230</p> <p>7.7 End of Chapter Summary 230</p> <p>7.8 References and Further Reading 231</p> <p>7.8.1 Books and Papers 231</p> <p>7.8.2 Websites 231</p> <p>7.9 Problems 231</p> <p><b>8 Active Fixed-Income Portfolio Management 233</b></p> <p>8.1 Market Timing: Trading on Interest-Rate Predictions 233</p> <p>8.1.1 Timing Bets on No Change in the Yield Curve or “Riding the Yield Curve” 234</p> <p>8.1.2 Timing Bets on Interest-Rate Level 236</p> <p>8.1.3 Timing Bets on Specific Changes in the Yield Curve 238</p> <p>8.1.4 Scenario Analysis 251</p> <p>8.1.5 Active Fixed-Income Style Allocation Decisions 255</p> <p>8.2 Trading on Market Inefficiencies 268</p> <p>8.2.1 Trading within a Given Market: The Bond Relative Value Analysis 269</p> <p>8.2.2 Trading across Markets: Spread and Convergence Trades 276</p> <p>8.3 End of Chapter Summary 282</p> <p>8.4 References and Further Reading 283</p> <p>8.4.1 On Active Fixed-Income Strategies 283</p> <p>8.4.2 On Active Asset Allocation Decisions 284</p> <p>8.4.3 Others 286</p> <p>8.5 Problems 286</p> <p><b>9 Performance Measurement on Fixed-Income Portfolios 293</b></p> <p>9.1 Return Measures 293</p> <p>9.1.1 Arithmetic Rate of Return 293</p> <p>9.1.2 Geometric Rate of Return 294</p> <p>9.2 Risk-Adjusted Performance Evaluation 295</p> <p>9.2.1 Absolute Risk-Adjusted Performance Evaluation 296</p> <p>9.2.2 Relative Risk-Adjusted Performance Evaluation 299</p> <p>9.3 Application of Style Analysis to Performance Evaluation of Bond Portfolio Managers: An Example 309</p> <p>9.3.1 Alpha Analysis 310</p> <p>9.3.2 Passive Versus Active Managers 313</p> <p>9.4 End of Chapter Summary 314</p> <p>9.5 References and Further Reading 315</p> <p>9.5.1 Books and Papers 315</p> <p>9.5.2 Websites 316</p> <p>9.6 Problems 316</p> <p><b>Part V Swaps and Futures</b></p> <p><b>10 Swaps 325</b></p> <p>10.1 Description of Swaps 325</p> <p>10.1.1 Definition 325</p> <p>10.1.2 Terminology and Conventions 325</p> <p>10.2 Pricing and Market Quotes 326</p> <p>10.2.1 Pricing of Swaps 326</p> <p>10.2.2 Market Quotes 333</p> <p>10.3 Uses of Swaps 334</p> <p>10.3.1 Optimizing the Financial Conditions of a Debt 335</p> <p>10.3.2 Converting the Financial Conditions of a Debt 336</p> <p>10.3.3 Creating New Assets Using Swaps 337</p> <p>10.3.4 Hedging Interest-Rate Risk Using Swaps 339</p> <p>10.4 Nonplain Vanilla Swaps 342</p> <p>10.4.1 Accrediting, Amortizing and Roller Coaster Swaps 342</p> <p>10.4.2 Basis Swap 343</p> <p>10.4.3 Constant Maturity Swap and Constant Maturity Treasury Swap 343</p> <p>10.4.4 Forward-Starting Swap 344</p> <p>10.4.5 Inflation-Linked Swap 344</p> <p>10.4.6 Libor in Arrears Swap 344</p> <p>10.4.7 Yield-Curve Swap 345</p> <p>10.4.8 Zero-Coupon Swap 345</p> <p>10.5 End of Chapter Summary 346</p> <p>10.6 References and Further Reading 346</p> <p>10.6.1 Books and Papers 346</p> <p>10.6.2 Websites 347</p> <p>10.7 Problems 347</p> <p><b>11 Forwards and Futures 353</b></p> <p>11.1 Definition 353</p> <p>11.2 Terminology, Conventions and Market Quotes 354</p> <p>11.2.1 Terminology and Conventions 354</p> <p>11.2.2 Quotes 356</p> <p>11.3 Margin Requirements and the Role of the Clearing House 358</p> <p>11.4 Conversion Factor and the Cheapest-to-Deliver Bond 359</p> <p>11.4.1 The Cheapest to Deliver on the Repartition Date 360</p> <p>11.4.2 The Cheapest to Deliver before the Repartition Date 361</p> <p>11.5 Pricing of Forwards and Futures 362</p> <p>11.5.1 Forward-Spot Parity or How to Price a Forward Contract? 362</p> <p>11.5.2 The Forward Contract Payoff 364</p> <p>11.5.3 Relation between Forward and Futures Prices 365</p> <p>11.6 Uses of Forwards and Futures 365</p> <p>11.6.1 Pure Speculation with Leverage Effect 365</p> <p>11.6.2 Fixing Today the Financial Conditions of a Loan or Investment in the Future 366</p> <p>11.6.3 Detecting Riskless Arbitrage Opportunities Using Futures 367</p> <p>11.6.4 Hedging Interest-Rate Risk Using Futures 368</p> <p>11.7 End of Chapter Summary 370</p> <p>11.8 References and Further Reading 371</p> <p>11.8.1 Books and Papers 371</p> <p>11.8.2 Websites of Futures Markets and of the Futures Industry Association 371</p> <p>11.9 Problems 372</p> <p>11.10 Appendix: Forward and Futures Prices Are Identical When Interest Rates Are Constant 375</p> <p><b>Part VI Modeling The Term Structure of Interest Rates and Credit Spreads</b></p> <p><b>12 Modeling the Yield Curve Dynamics 381</b></p> <p>12.1 The Binomial Interest-Rate Tree Methodology 382</p> <p>12.1.1 Building an Interest-Rate Tree 382</p> <p>12.1.2 Calibrating an Interest-Rate Tree 384</p> <p>12.2 Continuous-Time Models 387</p> <p>12.2.1 Single-Factor Models 388</p> <p>12.2.2 Multifactor Models 392</p> <p>12.3 Arbitrage Models 396</p> <p>12.3.1 A Discrete-Time Example: Ho and Lee’s Binomial Lattice 396</p> <p>12.3.2 Arbitrage Models in Continuous Time 401</p> <p>12.4 End of Chapter Summary 406</p> <p>12.5 References and Further Reading 407</p> <p>12.6 Problems 411</p> <p>12.7 Appendix 1: The Hull and White Trinomial Lattice 413</p> <p>12.7.1 Discretizing the Short Rate 413</p> <p>12.7.2 Calibrating the Lattice to the Current Spot Yield Curve 416</p> <p>12.7.3 Option Pricing 419</p> <p>12.8 Appendix 2: An Introduction to Stochastic Processes in Continuous Time 420</p> <p>12.8.1 Brownian Motion 420</p> <p>12.8.2 Stochastic Integral 423</p> <p>12.8.3 Stochastic Differential Equations (SDE) 425</p> <p>12.8.4 Asset Price Process 426</p> <p>12.8.5 Representation of Brownian Martingales 426</p> <p>12.8.6 Continuous-Time Asset Pricing 427</p> <p>12.8.7 Feynman–Kac Formula 431</p> <p>12.8.8 Application to Equilibrium Models of the Term Structure 432</p> <p><b>13 Modeling the Credit Spreads Dynamics 437</b></p> <p>13.1 Analyzing Credit Spreads 438</p> <p>13.1.1 Ratings 438</p> <p>13.1.2 Default Probability 440</p> <p>13.1.3 The Severity of Default 441</p> <p>13.2 Modeling Credit Spreads 441</p> <p>13.2.1 Structural Models 442</p> <p>13.2.2 Subsequent Models 446</p> <p>13.2.3 Reduced-Form Models 448</p> <p>13.2.4 Historical versus Risk-Adjusted Probability of Default 450</p> <p>13.3 End of Chapter Summary 452</p> <p>13.4 References and Further Reading 453</p> <p>13.4.1 Books and Papers 453</p> <p>13.4.2 Websites 454</p> <p>13.5 Problems 455</p> <p><b>Part VII Plain Vanilla Options and More Exotic Derivatives</b></p> <p><b>14 Bonds with Embedded Options and Options on Bonds 459</b></p> <p>14.1 Callable and Putable Bonds 459</p> <p>14.1.1 Institutional Aspects 459</p> <p>14.1.2 Pricing 460</p> <p>14.1.3 OAS Analysis 467</p> <p>14.1.4 Effective Duration and Convexity 468</p> <p>14.2 Convertible Bonds 470</p> <p>14.2.1 Institutional Aspects 470</p> <p>14.2.2 Valuation of Convertible Bonds 473</p> <p>14.2.3 Convertible Arbitrage 479</p> <p>14.3 Options on Bonds 482</p> <p>14.3.1 Definition 482</p> <p>14.3.2 Uses 483</p> <p>14.3.3 Pricing 487</p> <p>14.4 End of Chapter Summary 491</p> <p>14.5 References and Further Reading 492</p> <p>14.5.1 On Callable and Putable Bonds 492</p> <p>14.5.2 On Convertible Bonds 492</p> <p>14.5.3 On Options on Bonds 493</p> <p>14.6 Problems 494</p> <p>14.7 Appendix: Bond Option Prices in the Hull and White (1990) Model 498</p> <p>14.7.1 Call on Zero-Coupon Bond 499</p> <p>14.7.2 Call on Coupon Bond 499</p> <p><b>15 Options on Futures, Caps, Floors and Swaptions 500</b></p> <p>15.1 Options on Futures 500</p> <p>15.1.1 Definition and Terminology 500</p> <p>15.1.2 Pricing and Hedging Options on Futures 502</p> <p>15.1.3 Market Quotes 505</p> <p>15.1.4 Uses of Futures Options 508</p> <p>15.2 Caps, Floors and Collars 508</p> <p>15.2.1 Definition and Terminology 508</p> <p>15.2.2 Pricing and Hedging Caps, Floors and Collars 510</p> <p>15.2.3 Market Quotes 514</p> <p>15.2.4 Uses of Caps, Floors and Collars 516</p> <p>15.3 Swaptions 520</p> <p>15.3.1 Definition and Terminology 520</p> <p>15.3.2 Pricing and Hedging Swaptions 521</p> <p>15.3.3 Market Quotes 526</p> <p>15.3.4 Uses of Swaptions 526</p> <p>15.4 End of Chapter Summary 527</p> <p>15.5 References and Further Reading 528</p> <p>15.5.1 Books and Papers 528</p> <p>15.5.2 Websites 529</p> <p>15.6 Problems 529</p> <p>15.7 Appendix 1: Proof of the Cap and Floor Formulas in the Black (1976) Model 534</p> <p>15.8 Appendix 2: Proof of the Swaption Formula in the Black (1976) Model 535</p> <p>15.9 Appendix 3: Forward and Futures Option Prices Written on T-Bond and Libor in the Hull and White (1990) Model 536</p> <p>15.9.1 Options on Forward Contracts 536</p> <p>15.9.2 Options on Futures Contracts 537</p> <p>15.10 Appendix 4: Cap, Floor and Swaption Prices in the Hull and White (1990) Model 539</p> <p>15.10.1 Cap and Floor 539</p> <p>15.10.2 Swaption 540</p> <p>15.11 Appendix 5: Market Models (BGM/Jamshidian Approach) 541</p> <p>15.11.1 Why Define New Variables? 541</p> <p>15.11.2 Building New Variables 542</p> <p>15.11.3 The Dynamics of <i>L(t, θ) </i>and <i>K(t, t </i>+ <i>θ) </i>543</p> <p>15.11.4 Pricing of Caps 545</p> <p>15.11.5 Calibration of the Model 546</p> <p><b>16 Exotic Options and Credit Derivatives 548</b></p> <p>16.1 Interest-Rate Exotic Options 548</p> <p>16.1.1 Barrier Caps and Floors 548</p> <p>16.1.2 Bounded Caps, Floors, Barrier Caps and Floors 550</p> <p>16.1.3 Cancelable Swaps 551</p> <p>16.1.4 Captions and Floortions 551</p> <p>16.1.5 Choosercaps and Flexicaps-and-Floors 551</p> <p>16.1.6 Contingent Premium Caps and Floors 553</p> <p>16.1.7 Extendible Swaps 554</p> <p>16.1.8 Incremental Fixed Swaps 554</p> <p>16.1.9 Index Amortizing Bonds and Swaps 555</p> <p>16.1.10 Marked-to-Market Caps 557</p> <p>16.1.11 Moving Average Caps and Floors 557</p> <p>16.1.12 N-Caps and Floors 558</p> <p>16.1.13 Q-Caps and Floors 558</p> <p>16.1.14 Range Accrual Swaps 559</p> <p>16.1.15 Ratchet Caps and Floors 560</p> <p>16.1.16 Reflex Caps and Floors 561</p> <p>16.1.17 Rental Caps and Floors 562</p> <p>16.1.18 Rolling Caps and Floors 562</p> <p>16.1.19 Spread Options 563</p> <p>16.1.20 Subsidized Swaps 563</p> <p>16.1.21 Pricing and Hedging Interest-Rate Exotic Options 565</p> <p>16.2 Credit Derivatives 565</p> <p>16.2.1 The Significance of Credit Derivatives 565</p> <p>16.2.2 Types of Credit Derivatives 567</p> <p>16.3 End of Chapter Summary 575</p> <p>16.4 References and Further Reading 575</p> <p>16.4.1 On Interest-Rate Exotic Options 575</p> <p>16.4.2 On Credit Derivatives 576</p> <p>16.4.3 On Numerical Methods (See the Appendix 2) 576</p> <p>16.4.4 Websites and Others 577</p> <p>16.5 Problems 577</p> <p>16.6 Appendix 1: Pricing and Hedging Barrier Caps and Floors in the Black Model 580</p> <p>16.6.1 Barrier Cap Formulas 580</p> <p>16.6.2 Barrier Floor Formulas 581</p> <p>16.6.3 Barrier Cap and Floor Greeks 581</p> <p>16.7 Appendix 2: Numerical Methods 583</p> <p>16.7.1 Monte Carlo Simulations 583</p> <p>16.7.2 Finite-Difference Methods 585</p> <p><b>Part VIII Securitization</b></p> <p><b>17 Mortgage-Backed Securities 593</b></p> <p>17.1 Description of MBSs 593</p> <p>17.1.1 Definition 593</p> <p>17.1.2 The Amortization Mechanism 593</p> <p>17.1.3 The Prepayment Feature 596</p> <p>17.1.4 Typology of MBS 596</p> <p>17.2 Market Quotes and Pricing 598</p> <p>17.2.1 Market Quotes 599</p> <p>17.2.2 Pricing of MBS 600</p> <p>17.3 End of Chapter Summary 603</p> <p>17.4 References and Further Reading 604</p> <p>17.4.1 Books and Papers 604</p> <p>17.4.2 Websites 605</p> <p>17.5 Problems 605</p> <p><b>18 Asset-Backed Securities 607</b></p> <p>18.1 Description of ABSs 607</p> <p>18.1.1 Definition 607</p> <p>18.1.2 Credit Enhancement 607</p> <p>18.1.3 Cash-Flow Structure 608</p> <p>18.2 Market Quotes and Pricing 610</p> <p>18.3 CAT Bonds and CAT Derivatives 612</p> <p>18.4 End of Chapter Summary 615</p> <p>18.5 References and Further Reading 615</p> <p>18.6 Problems 616</p> <p>Subject Index 617</p> <p>Author Index 629</p>
<b>Lionel Martellini</b> is an assistant Professor of Finance at the Marshall School of Business, University of Southern California, where he teaches "fixed-income securities" at the MBA level. He is also a research associate at the EDHEC Risk and Asset Management Research Center, and a member of the editorial boards of <i>The Journal of Bond Training and Management</i> and <i>The Journal of Alternative Investments</i>. <p><b>Philippe Priaulet</b> is a fixed-income strategist in charge of derivatives strategies for HSBC. His expertise is related to fixed-income asset management and derivatives pricing and hedging, and his research has been published in leading academic and practitioners' journals. Formerly, he was head of fixed-income research in the Research and Innovation Department of HSBC-CCF.</p> <p><b>Stéphanie Priaulet</b> is a senior index portfolio manager in the Structured Asset Management Department at AXA Investment Managers. Previously, he was head of qualitative engineering in The Fixed Income Research Department at AXA Investment Managers. He also teaches "fixed-income securities" as a part-time lecturer at the University Paris Dauphine. He is a member of the editorial board of <i>The Journal of Bond Trading and Management</i>, where he has published several research papers.</p>
<p><b>Fixed-income securities</b> <p><b>Valuation, Risk Management and Portfolio Strategies</b><br> Lionel Martellini, Philippe Priaulet and Stéphane Priaulet <p>This is the first comprehensive textbook for students studying fixed-income securities, and is ideally suitable to MBA, MSc and final-year undergraduate students in Finance and related topics. <p>The text offers an accessible and detailed account of interest rates and risk management in bond markets. It develops insights into different bond portfolio strategies, and illustrates how various types of derivative securities can be used to shift the risk associated with investing in fixed-income securities. It also provides extensive coverage on all sectors of the bond market, and the techniques for valuing bonds. In addition, explanation is given of state-of-the-art techniques for bond portfolio management, including: <ul> <li>A description of numerous fixed-income assets and related securities, namely zero coupon government bonds, coupon bearing government bonds, corporate bonds, exchange-tradedbond options, bonds with embedded options, floating rate notes, caps, floors and collars, swaptions, credit derivatives, mortgage-backed securities, etc.</li> <li>The development of tools to analyse interest rate sensitivity and to value fixed-income securities, with an emphasis on active and passive bond management, and an overview of techniques used by mutual fund and also hedge fund managers.</li> </ul> <p>With numerous worked examples covering valuation, risk management and portfolio strategies and imaginative discussion of important topics such as deriving the zero yield curve, deriving credit spreads, and hedging interest rate risk, the text provides an accessible route into the complex worlds of fixed-income securities. <p><i>The authors have produced a work of the very highest quality. As focused as it is comprehensive,this is a superb contribution to the literature . . .</i><br/> <b>—Moorad Choudhry</b>, VP, Structured Finance Services, JPMorgan Chase Bank, Senior Fellow, Centre for Mathematical Trading and Finance, CASS Business School, London. <p><i>The authors have written a fantastic textbook that combines rigorous theory with market practice, giving fixed-income students access to the important developments of the last twenty years. This will become the standard textbook for any serious MBA course on fixed-income.</i><br/> <b>—Pedro Santa-Clara,</b> Anderson School of Management, University of California, Los Angeles. <p>Supplementary materials for lecturers and students (including a syllabus, course web page, PowerPoint slides, solutions to problems, and Excel illustrations) can be found at the following website: http://www.wiley.co.uk/martellini <p>Please visit our website at <b>www.wileyfinance.com</b>

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