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Index
Title Page
Copyright Page
Foreword
Acknowledgements
First Edition (Reprinted from First Edition)
Second Edition
Introduction
PARENTAGE
BENEFITS
CONVENTIONAL WISDOM
THE TEXTS
NOTE ON ROUNDING DIFFERENCES
CHAPTER 1 - FEATURES OF DEBT SECURITIES
I. INTRODUCTION
II. INDENTURE AND COVENANTS
III. MATURITY
IV. PAR VALUE
V. COUPON RATE
VI. PROVISIONS FOR PAYING OFF BONDS
VII. CONVERSION PRIVILEGE
VIII. PUT PROVISION
IX. CURRENCY DENOMINATION
X. EMBEDDED OPTIONS
XI. BORROWING FUNDS TO PURCHASE BONDS
CHAPTER 2 - RISKS ASSOCIATED WITH INVESTING IN BONDS
I. INTRODUCTION
II. INTEREST RATE RISK
III. YIELD CURVE RISK
IV. CALL AND PREPAYMENT RISK
V. REINVESTMENT RISK
VI. CREDIT RISK
VII. LIQUIDITY RISK
VIII . EXCHANGE RATE OR CURRENCY RISK
IX. INFLATION OR PURCHASING POWER RISK
X. VOLATILITY RISK
XI. EVENT RISK
XII. SOVEREIGN RISK
CHAPTER 3 - OVERVIEW OF BOND SECTORS AND INSTRUMENTS
I. INTRODUCTION
II. SECTORS OF THE BOND MARKET
III. SOVEREIGN BONDS
IV. SEMI-GOVERNMENT / AGENCY BONDS
V. STATE AND LOCAL GOVERNMENTS
VI. CORPORATE DEBT SECURITIES
VII. ASSET-BACKED SECURITIES
VIII. COLLATERALIZED DEBT OBLIGATIONS
IX . PRIMARY MARKET AND SECONDARY MARKET FOR BONDS
CHAPTER 4 - UNDERSTANDING YIELD SPREADS
I. INTRODUCTION
II. INTEREST RATE DETERMINATION
III. U.S. TREASURY RATES
IV. YIELDS ON NON-TREASURY SECURITIES
V. NON-U.S. INTEREST RATES
VI. SWAP SPREADS
CHAPTER 5 - INTRODUCTION TO THE VALUATION OF DEBT SECURITIES
I. INTRODUCTION
II. GENERAL PRINCIPLES OF VALUATION
III. TRADITIONAL APPROACH TO VALUATION
IV. THE ARBITRAGE-FREE VALUATION APPROACH
V. VALUATION MODELS
CHAPTER 6 - YIELD MEASURES, SPOT RATES, AND FORWARD RATES
I. INTRODUCTION
II. SOURCES OF RETURN
III. TRADITIONAL YIELD MEASURES
IV. THEORETICAL SPOT RATES
V. FORWARD RATES
CHAPTER 7 - INTRODUCTION TO THE MEASUREMENT OF INTEREST RATE RISK
I. INTRODUCTION
II. THE FULL VALUATION APPROACH
III. PRICE VOLATILITY CHARACTERISTICS OF BONDS
IV. DURATION
V. CONVEXITY ADJUSTMENT
VI. PRICE VALUE OF A BASIS POINT
VII. THE IMPORTANCE OF YIELD VOLATILITY
CHAPTER 8 - TERM STRUCTURE AND VOLATILITY OF INTEREST RATES
I. INTRODUCTION
II. HISTORICAL LOOK AT THE TREASURY YIELD CURVE
III. TREASURY RETURNS RESULTING FROM YIELD CURVE MOVEMENTS
IV. CONSTRUCTING THE THEORETICAL SPOT RATE CURVE FOR TREASURIES
V. THE SWAP CURVE (LIBOR CURVE)
VI. EXPECTATIONS THEORIES OF THE TERM STRUCTURE OF INTEREST RATES
VII. MEASURING YIELD CURVE RISK
VIII. YIELD VOLATILITY AND MEASUREMENT
CHAPTER 9 - VALUING BONDS WITH EMBEDDED OPTIONS
I. INTRODUCTION
II. ELEMENTS OF A BOND VALUATION MODEL
III. OVERVIEW OF THE BOND VALUATION PROCESS
IV. REVIEW OF HOW TO VALUE AN OPTION-FREE BOND
V. VALUING A BOND WITH AN EMBEDDED OPTION USING THE BINOMIAL MODEL
VI. VALUING AND ANALYZING A CALLABLE BOND
VII. VALUING A PUTABLE BOND
VIII. VALUING A STEP-UP CALLABLE NOTE
IX. VALUING A CAPPED FLOATER
X. ANALYSIS OF CONVERTIBLE BONDS
CHAPTER 10 - MORTGAGE-BACKED SECTOR OF THE BOND MARKET
I. INTRODUCTION
II. RESIDENTIAL MORTGAGE LOANS
III. MORTGAGE PASSTHROUGH SECURITIES
IV. COLLATERALIZED MORTGAGE OBLIGATIONS
V. STRIPPED MORTGAGE-BACKED SECURITIES
VI. NONAGENCY RESIDENTIAL MORTGAGE-BACKED SECURITIES
VII. COMMERCIAL MORTGAGE-BACKED SECURITIES
CHAPTER 11 - ASSET-BACKED SECTOR OF THE BOND MARKET
I. INTRODUCTION
II. THE SECURITIZATION PROCESS AND FEATURES OF ABS
III. HOME EQUITY LOANS
IV. MANUFACTURED HOUSING-BACKED SECURITIES
V. RESIDENTIAL MBS OUTSIDE THE UNITED STATES
VI. AUTO LOAN-BACKED SECURITIES
VII. STUDENT LOAN-BACKED SECURITIES
VIII. SBA LOAN-BACKED SECURITIES
IX. CREDIT CARD RECEIVABLE-BACKED SECURITIES
X. COLLATERALIZED DEBT OBLIGATIONS
CHAPTER 12 - VALUING MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
I. INTRODUCTION
II. CASH FLOW YIELD ANALYSIS
III. ZERO-VOLATILITY SPREAD
IV. MONTE CARLO SIMULATION MODEL AND OAS
V. MEASURING INTEREST RATE RISK
VI. VALUING ASSET-BACKED SECURITIES
VII. VALUING ANY SECURITY
CHAPTER 13 - INTEREST RATE DERIVATIVE INSTRUMENTS
I. INTRODUCTION
II . INTEREST RATE FUTURES
III. INTEREST RATE OPTIONS
IV. INTEREST RATE SWAPS
V. INTEREST RATE CAPS AND FLOORS
CHAPTER 14 - VALUATION OF INTEREST RATE DERIVATIVE INSTRUMENTS
I. INTRODUCTION
II. INTEREST RATE FUTURES CONTRACTS
III. INTEREST RATE SWAPS
IV. OPTIONS
V. CAPS AND FLOORS
CHAPTER 15 - GENERAL PRINCIPLES OF CREDIT ANALYSIS
I. INTRODUCTION
II. CREDIT RATINGS
III . TRADITIONAL CREDIT ANALYSIS
IV. CREDIT SCORING MODELS
V. CREDIT RISK MODELS
APPENDIX: CASE STUDY: BERGEN BRUNSWIG CORPORATION
I. BACKGROUND INFORMATION
II. ANALYSIS
III. CONCLUSION
CHAPTER 16 - INTRODUCTION TO BOND PORTFOLIO MANAGEMENT
I. INTRODUCTION
II. SETTING INVESTMENT OBJECTIVES FOR FIXED-INCOME INVESTORS
III. DEVELOPING AND IMPLEMENTING A PORTFOLIO STRATEGY
IV. MONITORING THE PORTFOLIO
V. ADJUSTING THE PORTFOLIO
CHAPTER 17 - MEASURING A PORTFOLIOâS RISK PROFILE
I. INTRODUCTION
II. REVIEW OF STANDARD DEVIATION AND DOWNSIDE RISK MEASURES
III. TRACKING ERROR
IV. MEASURING A PORTFOLIOâS INTEREST RATE RISK
V. MEASURING YIELD CURVE RISK
VI. SPREAD RISK
VII. CREDIT RISK
VIII. OPTIONALITY RISK FOR NON-MBS
IX. RISKS OF INVESTING IN MORTGAGE-BACKED SECURITIES
X. MULTI-FACTOR RISK MODELS
CHAPTER 18 - MANAGING FUNDS AGAINST A BOND MARKET INDEX
I. INTRODUCTION
II. DEGREES OF ACTIVE MANAGEMENT
III. STRATEGIES
IV. SCENARIO ANALYSIS FOR ASSESSING POTENTIAL PERFORMANCE
V. USING MULTI-FACTOR RISK MODELS IN PORTFOLIO CONSTRUCTION
VI. PERFORMANCE EVALUATION
VII. LEVERAGING STRATEGIES
CHAPTER 19 - PORTFOLIO IMMUNIZATION AND CASH FLOW MATCHING
I. INTRODUCTION
II. IMMUNIZATION STRATEGY FOR A SINGLE LIABILITY
III. CONTINGENT IMMUNIZATION
IV. IMMUNIZATION FOR MULTIPLE LIABILITIES
V. CASH FLOW MATCHING FOR MULTIPLE LIABILITIES
CHAPTER 20 - RELATIVE-VALUE METHODOLOGIES FOR GLOBAL CREDIT BOND PORTFOLIO MANAGEMENT
I. INTRODUCTION
II. CREDIT RELATIVE-VALUE ANALYSIS
III. TOTAL RETURN ANALYSIS
IV. PRIMARY MARKET ANALYSIS
V. LIQUIDITY AND TRADING ANALYSIS
VI. SECONDARY TRADE RATIONALES
VII. SPREAD ANALYSIS
VIII. STRUCTURAL ANALYSIS
IX. CREDIT CURVE ANALYSIS
X . CREDIT ANALYSIS
XI. ASSET ALLOCATION/SECTOR ROTATION
CHAPTER 21 - INTERNATIONAL BOND PORTFOLIO MANAGEMENT
I. INTRODUCTION
II. INVESTMENT OBJECTIVES AND POLICY STATEMENTS
III. DEVELOPING A PORTFOLIO STRATEGY
IV. PORTFOLIO CONSTRUCTION
APPENDIX
CHAPTER 22 - CONTROLLING INTEREST RATE RISK WITH DERIVATIVES
I . INTRODUCTION
II. CONTROLLING INTEREST RATE RISK WITH FUTURES
III. CONTROLLING INTEREST RATE RISK WITH SWAPS
IV. HEDGING WITH OPTIONS
V. USING CAPS AND FLOORS
CHAPTER 23 - HEDGING MORTGAGE SECURITIES TO CAPTURE RELATIVE VALUE
I. INTRODUCTION
II. THE PROBLEM
III. MORTGAGE SECURITY RISKS
IV. HOW INTEREST RATES CHANGE OVER TIME
V. HEDGING METHODOLOGY
VI . HEDGING CUSPY-COUPON MORTGAGE SECURITIES
CHAPTER 24 - CREDIT DERIVATIVES IN BOND PORTFOLIO MANAGEMENT
I . INTRODUCTION
II. MARKET PARTICIPANTS
III. WHY CREDIT RISK IS IMPORTANT
IV. TOTAL RETURN SWAP
V. CREDIT DEFAULT PRODUCTS
VI. CREDIT SPREAD PRODUCTS
VII. SYNTHETIC COLLATERALIZED DEBT OBLIGATIONS
VIII. BASKET DEFAULT SWAPS
ABOUT THE CFA PROGRAM
ABOUT THE AUTHOR
ABOUT THE CONTRIBUTORS
Index
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