Praise for Fixed–Income Securities and Derivatives Handbook, Second Edition
"I have been looking for books for my clients and obtained a copy of your book. I think it is the best book about fixed–income securities out there. The book is extremely well written and is the best resource I have found so far."
Patrick Y. Shim, Financial Advisor, CG Investment Group, Wells Fargo Advisors, LLC
The Second Edition of the Fixed–Income Securities and Derivatives Handbook is a fully updated and expanded post–crash edition of Moorad Choudhry′s bestselling guide. In this latest edition, he explains the new regulatory twists, the evolving derivatives market, as well as a new set of instruments and opportunities in the bond market.
Thoroughly updated and revised, this Second Edition includes new material on important topics such as:
A practical demonstration of cubic spline methodology, useful in constructing yield curves
The latest developments in the credit derivative market
An accessible analysis of credit default swap pricing principles
A description of inflation–indexed derivatives
A more detailed look at the basic principles of securitization and an updated chapter on collateralized debt obligations
A new chapter on credit analysis and the different metrics used to measure bond–relative value
Written in a straightforward and accessible style, Moorad Choudhry′s new book offers the ideal mix of practical tips and academic theory.
PART ONE: INTRODUCTION TO BONDS.
1 The Bond Instrument.
The Time Value of Money.
Bond Pricing and Yield: The Traditional Approach.
2 Bond Instruments and Interest Rate Risk.
Duration, Modifi ed Duration, and Convexity.
3 Bond Pricing and Spot and Forward Rates.
Bond Price in Continuous Time.
Term Structure Hypotheses.
4 Interest Rate Modeling.
One–Factor Term–Structure Models.
Further One–Factor Term–Structure Models.
Two–Factor Interest Rate Models.
Choosing a Term–Structure Model.
5 Fitting the Yield Curve.
Fitting the Term Structure of Interest Rates: The Practical Implementation of Cubic Spline Methodology.
Cubic Spline Methodology.
A Look at Forward Rates.
PART TWO: SELECTED CASH AND DERIVATIVE INSTRUMENTS.
6 Forwards and Futures Valuation.
Forwards and Futures.
The Basis and Implied Repo Rate.
Interest Rate Swaps.
Generic Swap Valuation.
Non Plain Vanilla Interest Rate Swaps.
Interest Rate Swap Applications.
Option Pricing: Setting the Scene.
The Black–Scholes Option Model.
Other Option Models.
9 Measuring Option Risk.
Option Price Behavior.
The Option Smile.
Caps and Floors.
10 Credit Derivatives.
Credit Risk and Credit Derivatives.
Credit Derivative Instruments.
Credit Derivatives and Relative Value Trading.
11 The Analysis of Bonds with Embedded Options.
12 Option–Adjusted Spread Analysis.
13 Convertible Bonds.
Advantages of Issuing and Holding Convertibles.
Convertible Bond Valuation.
14 Inflation–Indexed Bonds.
Index–Linked Bond Cash Flows and Yields.
Analysis of Real Interest Rates.
15 Securitization and Asset–Backed Securities.
The Concept of Securitization.
The Process of Securitization.
Cash Flow Patterns.
ABS Structures: A Primer on Performance Metrics and Test Measures.
Securitization: Features of the 2007 2009 Financial Crisis.
16 Collateralized Debt Obligations.
Motivation Behind CDO Issuance.
Analysis and Evaluation.
CDO Market Overview Since 2005.
PART THREE: SELECTED MARKET TRADING CONSIDERATIONS.
17 The Yield Curve, Bond Yield, and Spot Rates.
Practical Uses of Redemption Yield and Duration.
Illustrating Bond Yield Using a Microsoft Excel Spreadsheet.
Implied Spot Rates and Market Zero–Coupon Yields.
Implied Spot Yields and Zero–Coupon Bond Yields.
Determining Strip Values.
Strips Market Anomalies.
Strips Trading Strategy.
Case Study: Treasury Strip Yields and Cash Flow Analysis.
18 Approaches to Trading.
Yield Curves and Relative Value.
Characterizing the Complete Term Structure.
Hedging Bond Positions.
Summary of the Derivation of the Optimum–Hedge Equation.
19 Credit Analysis and Relative Value Measurement.
The Art of Credit Analysis.
Bond Spreads and Relative Value.
Appendix I: The Black–Scholes Model in Microsoft Excel.
Appendix II: Iterative Formula Spreadsheet.
Appendix III: Pricing Spreadsheet.
About the Author.
Moorad Choudhry (Surrey, UK) is head of treasury at Europe Arab Bank plc in London. Previously, he was head of treasury at KBC Financial Products, and a vice president in Structured Finance Service at JPMorgan Chase Bank. Prior to that, he was a sterling proprietary trader at Hambros Bank Limited and gilt–edged market maker and money markets trader at ABN Amro Hoare Govett Ltd. Choudhry is visiting professor at the Department of Economics, London Metropolitan University and a visiting research fellow at the ICMA Centre, University of Reading. He was educated at the University of Westminster and the University of Reading. He obtained his MBA from Henley Management School and his PhD from Birkbeck, University of London. He has written several books on the credit markets.