Details

<p>Preface xiii</p> <p>About the Authors xv</p> <p><b>CHAPTER 1: Time Value of Money 1</b></p> <p>Future Value of a Single Cash Flow 1</p> <p>Present Value of a Single Cash Flow 4</p> <p>Compounding/Discounting When Interest Is Paid More Than Annually 8</p> <p>Future and Present Values of an Ordinary Annuity 10</p> <p>Yield (Internal Rate of Return) 20</p> <p>Concepts Presented in this Chapter 26</p> <p>Appendix: Compounding and Discounting in Continuous Time 27</p> <p>Questions 31</p> <p><b>CHAPTER 2: Yield Curve Analysis: Spot Rates and Forward Rates 33</b></p> <p>A Bond Is a Package of Zero-Coupon Instruments 33</p> <p>Theoretical Spot Rates 34</p> <p>Forward Rates 44</p> <p>Dynamics of the Yield Curve 57</p> <p>Concepts Presented in this CHAPTER 60</p> <p>Questions 60</p> <p><b>CHAPTER 3: Day Count Conventions and Accrued Interest 63</b></p> <p>Day Count Conventions 63</p> <p>Computing the Accrued Interest 74</p> <p>Concepts Presented in this Chapter 76</p> <p>Questions 76</p> <p><b>CHAPTER 4: Valuation of Option-Free Bonds 77</b></p> <p>General Principles of Valuation 77</p> <p>Determining a Bond’s Value 80</p> <p>The Price/Discount Rate Relationship 84</p> <p>Time Path of Bond 86</p> <p>Valuing a Zero-Coupon Bond 90</p> <p>Valuing a Bond Between Coupon Payments 90</p> <p>Traditional Approach to Valuation 94</p> <p>The Arbitrage-Free Valuation Approach 96</p> <p>Concepts Presented in this Chapter 107</p> <p>Questions 108</p> <p><b>CHAPTER 5: Yield Measures 109</b></p> <p>Sources of Return 109</p> <p>Traditional Yield Measures 113</p> <p>Yield to Call 121</p> <p>Yield to Put 123</p> <p>Yield to Worst 123</p> <p>Cash Flow Yield 124</p> <p>Portfolio Yield Measures 125</p> <p>Yield Measures for U.S. Treasury Bills 128</p> <p>Yield Spread Measures Relative to a Spot Rate Curve 134</p> <p>Concepts Presented in this Chapter 137</p> <p>Appendix: Mathematics of the Internal Rate of Return 138</p> <p>Questions 139</p> <p><b>CHAPTER 6: Analysis of Floating Rate Securities 141</b></p> <p>General Features of Floaters 141</p> <p>Valuing a Risky Floater 150</p> <p>Valuation of Floaters with Embedded Options 157</p> <p>Margin Measures 157</p> <p>Concepts Presented in this Chapter 166</p> <p>Questions 167</p> <p><b>CHAPTER 7: Valuation of Bonds with Embedded Options 169</b></p> <p>Overview of the Valuation of Bonds with Embedded Options 169</p> <p>Option-Adjusted Spread and Option Cost 170</p> <p>Lattice Model 172</p> <p>Binomial Model 175</p> <p>Illustration 196</p> <p>Concepts Presented in this Chapter 198</p> <p>Questions 198</p> <p><b>CHAPTER 8: Cash Flow for Mortgage-Backed Securities and Amortizing Asset-Backed Securities 199</b></p> <p>Cash Flow of Mortgage-Backed Securities 199</p> <p>Amortizing Asset-Backed Securities 238</p> <p>Concepts Presented in this Chapter 242</p> <p>Questions 244</p> <p><b>CHAPTER 9: Valuation of Mortgage-Backed and Asset-Backed Securities 247</b></p> <p>Static Cash Flow Yield Analysis 247</p> <p>Monte Carlo Simulation/OAS 249</p> <p>Concepts Presented in this Chapter 270</p> <p>Questions 270</p> <p><b>CHAPTER 10: Analysis of Convertible Bonds 273</b></p> <p>General Characteristics of Convertible Bonds 273</p> <p>Tools for Analyzing Convertibles 276</p> <p>Call and Put Features 278</p> <p>Convertible Bond Arbitrage 279</p> <p>Other Types of Convertibles 283</p> <p>Concepts Presented in this Chapter 285</p> <p>Questions 285</p> <p><b>CHAPTER 11: Total Return 287</b></p> <p>Computing the Total Return 287</p> <p>OAS-Total Return 290</p> <p>Total Return to Maturity 291</p> <p>Total Return for a Mortgage-Backed Security 299</p> <p>Portfolio Total Return 301</p> <p>Total Return Analysis for Multiple Scenarios 301</p> <p>Concepts Presented in this Chapter 314</p> <p>Questions 314</p> <p><b>CHAPTER 12: Measuring Interest Rate Risk 317</b></p> <p>The Full Valuation Approach 317</p> <p>Price Volatility Characteristics of Bonds 324</p> <p>Duration 334</p> <p>Other Duration Measures 350</p> <p>Convexity 360</p> <p>Price Value of a Basis Point 365</p> <p>The Importance of Yield Volatility 367</p> <p>Concepts Presented in this Chapter 369</p> <p>Questions 370</p> <p><b>CHAPTER 13: Value-at-Risk Measure and Extensions 373</b></p> <p>Value-at-Risk 373</p> <p>Conditional Value-at-Risk 384</p> <p>Concepts Presented in this Chapter 385</p> <p>Questions 386</p> <p><b>CHAPTER 14: Analysis of Inflation-Protected Bonds 387</b></p> <p>Breakeven Inflation rate 388</p> <p>Valuation of TIPS 389</p> <p>Measuring Interest Rate Risk 394</p> <p>Concepts Presented in this Chapter 397</p> <p>Questions 397</p> <p><b>CHAPTER 15: The Tools of Relative Value Analysis 399</b></p> <p>How Portfolio Managers Add Value 399</p> <p>Yield Spreads over Swap and Treasury Curves 400</p> <p>Asset Swaps 403</p> <p>Credit Default Swaps 410</p> <p>Concepts Presented in this Chapter 413</p> <p>Questions 414</p> <p><b>CHAPTER 16: Analysis of Interest Rate Swaps 417</b></p> <p>Description of an Interest Rate Swap 417</p> <p>Interpreting a Swap Position 419</p> <p>Terminology, Conventions, and Market Quotes 421</p> <p>Valuing Interest Rate Swaps 424</p> <p>Primary Determinants of Swap Spreads 440</p> <p>Dollar Duration of a Swap 445</p> <p>Concepts Presented in this Chapter 447</p> <p>Questions 447</p> <p><b>CHAPTER 17: Estimating Yield Volatility 451</b></p> <p>Historical Volatility 451</p> <p>Implied Volatility 455</p> <p>Forecasting Yield Volatility 459</p> <p>Concepts Presented in this Chapter 463</p> <p>Questions 463</p> <p>Index 465</p>

<p><b>FRANK J. FABOZZI, P<small>H</small>D, CFA, CPA,</b> is Professor in the Practice of Finance and Becton Fellow at the Yale School of Management and Editor of the <i>Journal of Portfolio Management.</i> 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. <p><b>STEVEN V. MANN, P<small>H</small>D,</b> 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 <i>The Global Money Markets, Measuring and Controlling Interest Rate and Credit Risk, Securities Finance</i> (as a coeditor), and <i>The Handbook of Fixed Income Securities</i> (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.

<p>To remain a competitive fixed income investor, both seasoned professionals and newcomers must stay up to date and knowledgeable about this continually evolving field. <p>Nobody understands this better than fixed income experts Frank Fabozzi and Steven Mann. And now, with the revised and updated <i>Introduction to Fixed Income Analytics, Second Edition,</i> they provide complete coverage of the most important issues in this area. Following in the footsteps of the popular first edition, this reliable resource skillfully details the key analytical concepts used in the fixed income market and illustrates how they are computed. <p>This book addresses everything from the valuation of fixed income securities with embedded options to the features of structured products—such as mortgage-backed securities and asset-backed securities—while also offering insights on basic principles like the time value of money. Updated to reflect current market trends, <i>Introduction to Fixed Income Analytics, Second Edition</i> will help practicing investment professionals invest wisely in this new era, as well as assist those aspiring to enter the field. Along the way, this practical guide: <ul> <li>Outlines approaches to bond valuation based on the discounted cash flow framework as well as relative value analysis</li> <li>Ties in analytical concepts with what is available on the Bloomberg Terminal and walks you through relevant Bloomberg functions</li> <li>Explains a superior metric for quantifying a portfolio's risk exposure: conditional value-at-risk (VaR)</li> <li>Describes the various issues associated with interest rate swaps—from counterparties and risk-return profile to economic interpretation—and illustrates how to value them</li> </ul> <p>Each chapter includes end-of-chapter questions so readers can test their knowledge of the concepts discussed as well as refine any computational skills needed to succeed. <p>Understanding fixed income analytics is essential in today's dynamic financial environment. The <i>Second Edition</i> of <i>Introduction to Fixed Income Analytics</i> will help you build a solid foundation in this field.

US