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Fixed Income Analysis provides authoritative and up-to-date coverage of how investment professionals analyze and manage fixed income portfolios. This guide contains comprehensive, example-driven presentations of all essential topics in the field to provide value for self-study, general reference, and classroom use. Readers are introduced to fundamental concepts before continuing on to analysis of risk, asset-backed securities, term structure analysis, and a general framework for valuation. The final section's readings build the skills needed to effectively manage fixed income portfolios,…mehr
Fixed Income Analysis provides authoritative and up-to-date coverage of how investment professionals analyze and manage fixed income portfolios. This guide contains comprehensive, example-driven presentations of all essential topics in the field to provide value for self-study, general reference, and classroom use. Readers are introduced to fundamental concepts before continuing on to analysis of risk, asset-backed securities, term structure analysis, and a general framework for valuation. The final section's readings build the skills needed to effectively manage fixed income portfolios, giving readers a real-world understanding of how the concepts discussed are practically applied in client-based scenarios.
* Understand fixed income securities, markets, and valuation
* Master risk analysis and general valuation of fixed income securities
* Learn how fixed income securities are backed by pools of assets
* Explore the relationships between bond yields of different maturities
For a deeper understanding of fixed income portfolio management practices, Fixed Income Analysis is a complete, essential resource.
* Understand fixed income securities, markets, and valuation
* Master risk analysis and general valuation of fixed income securities
* Learn how fixed income securities are backed by pools of assets
* Explore the relationships between bond yields of different maturities
For a deeper understanding of fixed income portfolio management practices, Fixed Income Analysis is a complete, essential resource.
Produktdetails
- Produktdetails
- The CFA Institute Series
- Verlag: Wiley & Sons
- 3. Aufl. 2015.
- Gewicht: 1198g
- ISBN-13: 9781118999493
- ISBN-10: 1118999495
- Artikelnr.: 41370893
- Herstellerkennzeichnung Die Herstellerinformationen sind derzeit nicht verfügbar.
- The CFA Institute Series
- Verlag: Wiley & Sons
- 3. Aufl. 2015.
- Gewicht: 1198g
- ISBN-13: 9781118999493
- ISBN-10: 1118999495
- Artikelnr.: 41370893
- Herstellerkennzeichnung Die Herstellerinformationen sind derzeit nicht verfügbar.
BARBARA S. PETITT, PHD, CFA, is Director, Curriculum Projects, EMEA, in the Education Division at CFA Institute. She holds a master's in management from EDHEC Business School as well as a master's in research and a PhD in finance from the University of Grenoble. She is a member of CFA Institute and CFA Society of the UK.
JERALD E. PINTO, PHD, CFA, has been at CFA Institute since 2002 as Visiting Scholar, Vice President, and now Director, Curriculum Projects, in the Education Division for the CFA and CIPM programs. He holds an MBA from Baruch College and a PhD in finance from the Stern School and is a member of CFA Virginia.
WENDY L. PIRIE, PHD, CFA, is Director, Curriculum Projects, in the Education Division at CFA Institute. She holds a PhD in accounting and finance from Queen's University at Kingston, Ontario, and MBAs from the Universities of Toronto and Calgary. She is a member of CFA Institute, New York Society of Security Analysts, and CFA Society of Chicago.
JERALD E. PINTO, PHD, CFA, has been at CFA Institute since 2002 as Visiting Scholar, Vice President, and now Director, Curriculum Projects, in the Education Division for the CFA and CIPM programs. He holds an MBA from Baruch College and a PhD in finance from the Stern School and is a member of CFA Virginia.
WENDY L. PIRIE, PHD, CFA, is Director, Curriculum Projects, in the Education Division at CFA Institute. She holds a PhD in accounting and finance from Queen's University at Kingston, Ontario, and MBAs from the Universities of Toronto and Calgary. She is a member of CFA Institute, New York Society of Security Analysts, and CFA Society of Chicago.
Foreword xv
Preface xvii
Acknowledgments xix
About the CFA Investment Series xxi
PART I Fixed-Income Essentials
CHAPTER 1 Fixed-Income Securities: Defining Elements 3
Learning Outcomes 3
1. Introduction 3
2. Overview of a Fixed-Income Security 4
3. Legal, Regulatory, and Tax Considerations 10
4. Structure of a Bond's Cash Flows 23
5. Bonds with Contingency Provisions 34
6. Summary 41
Problems 43
CHAPTER 2 Fixed-Income Markets: Issuance, Trading, and Funding 45
Learning Outcomes 45
1. Introduction 45
2. Overview of Global Fixed-Income Markets 46
3. Primary and Secondary Bond Markets 58
4. Sovereign Bonds 66
5. Non-Sovereign Government, Quasi-Government, and Supranational Bonds 69
6. Corporate Debt 71
7. Short-Term Funding Alternatives Available to Banks 80
8. Summary 86
Problems 88
CHAPTER 3 Introduction to Fixed-Income Valuation 91
Learning Outcomes 91
1. Introduction 91
2. Bond Prices and the Time Value of Money 92
3. Prices and Yields: Conventions for Quotes and Calculations 105
4. The Maturity Structure of Interest Rates 128
5. Yield Spreads 136
6. Summary 141
Problems 143
PART II Analysis of Risk
CHAPTER 4 Understanding Fixed-Income Risk and Return 153
Learning Outcomes 153
1. Introduction 154
2. Sources of Return 154
3. Interest Rate Risk on Fixed-Rate Bonds 162
4. Interest Rate Risk and the Investment Horizon 195
5. Credit and Liquidity Risk 201
6. Summary 202
Problems 205
CHAPTER 5 Fundamentals of Credit Analysis 211
Learning Outcomes 211
1. Introduction 211
2. Credit Risk 212
3. Capital Structure, Seniority Ranking, and Recovery Rates 214
4. Ratings Agencies, Credit Ratings, and Their Role in the Debt Markets 220
5. Traditional Credit Analysis: Corporate Debt Securities 229
6. Credit Risk vs. Return: Yields and Spreads 249
7. Special Considerations of High-Yield, Sovereign, and Non-Sovereign Credit Analysis 258
8. Summary 272
Problems 275
CHAPTER 6 Credit Analysis Models 279
Learning Outcomes 279
1. Introduction 279
2. Measures of Credit Risk 281
3. Traditional Credit Models 283
4. Structural Models 289
5. Reduced Form Models 297
6. The Term Structure of Credit Spreads 308
7. Asset-Backed Securities 315
8. Summary 317
References 318
Problems 318
PART III Asset-Backed Securities
CHAPTER 7 Introduction to Asset-Backed Securities 323
Learning Outcomes 323
1. Introduction 323
2. Benefits of Securitization for Economies and Financial Markets 324
3. The Securitization Process 326
4. Residential Mortgage Loans 335
5. Residential Mortgage-Backed Securities 338
6. Commercial Mortgage-Backed Securities 352
7. Non-Mortgage Asset-Backed Securities 355
8. Collateralized Debt Obligations 359
9. Summary 363
References 365
Problems 365
PART IV Valuation
CHAPTER 8 The Arbitrage-Free Valuation Framework 371
Learning Outcomes 371
1. Introduction 371
2. The Meaning of Arbitrage-Free Valuation 372
3. Interest Rate Trees and Arbitrage-Free Valuation 375
4. Monte Carlo Method 393
5. Summary 395
Problems 396
CHAPTER 9 Valuation and Analysis: Bonds with Embedded Options 401
Learning Outcomes 401
1. Introduction 402
2. Overview of Embedded Options 402
3. Valuation and Analysis of Callable and Putable Bonds 407
4. Interest Rate Risk of Bonds with Embedded Options 432
5. Valuation and Analysis of Capped and Floored Floating-Rate Bonds 444
6. Valuation and Analysis of Convertible Bonds 450
7. Bond Analytics 462
8. Summary 463
Problems 465
PART V Term Structure Analysis
CHAPTER 10 The Term Structure and Interest Rate Dynamics 473
Learning Outcomes 473
1. Introduction 474
2. Spot Rates and Forward Rates 474
3. The Swap Rate Curve 493
4. Traditional Theories of the Term Structure of Interest Rates 502
5. Modern Term Structure Models 507
6. Yield Curve Factor Models 515
7. Summary 524
References 525
Problems 525
PART VI Fixed-Income Portfolio Management
CHAPTER 11 Fixed-Income Portfolio Management--Part I 531
Learning Outcomes 531
1. Introduction 532
2. A Framework for Fixed-Income Portfolio Management 532
3. Managing Funds against a Bond Market Index 534
4. Managing Funds against Liabilities 555
5. Summary 578
Problems 580
CHAPTER 12 Fixed-Income Portfolio Management--Part II 585
Learning Outcomes 585
5. Other Fixed-Income Strategies 586
6. International Bond Investing 608
7. Selecting a Fixed-Income Manager 620
8. Summary 624
Problems 625
CHAPTER 13 Relative-Value Methodologies for Global Credit Bond Portfolio Management 633
Learning Outcomes 633
1. Introduction 633
2. Credit Relative-Value Analysis 636
A. Relative Value 638
B. Classic Relative-Value Analysis 638
C. Relative-Value Methodologies 640
3. Total Return Analysis 640
4. Primary Market Analysis 640
A. The Effect of Market-Structure Dynamics 641
B. The Effect of Product Structure 641
5. Liquidity and Trading Analysis 642
6. Secondary Trade Rationales 642
A. Popular Reasons for Trading 643
B. Trading Constraints 645
7. Spread Analysis 647
A. Alternative Spread Measures 647
B. Closer Look at Swap Spreads 648
C. Spread Tools 649
8. Structural Analysis 650
A. Bullets 651
B. Callables 652
C. Sinking Funds 652
D. Putables 653
9. Credit Curve Analysis 654
10. Credit Analysis 655
11. Asset Allocation/Sector Rotation 655
12. Summary 657
Problems 658
Glossary 667
About the Editors and Authors 683
About the CFA Program 691
Index 693
Preface xvii
Acknowledgments xix
About the CFA Investment Series xxi
PART I Fixed-Income Essentials
CHAPTER 1 Fixed-Income Securities: Defining Elements 3
Learning Outcomes 3
1. Introduction 3
2. Overview of a Fixed-Income Security 4
3. Legal, Regulatory, and Tax Considerations 10
4. Structure of a Bond's Cash Flows 23
5. Bonds with Contingency Provisions 34
6. Summary 41
Problems 43
CHAPTER 2 Fixed-Income Markets: Issuance, Trading, and Funding 45
Learning Outcomes 45
1. Introduction 45
2. Overview of Global Fixed-Income Markets 46
3. Primary and Secondary Bond Markets 58
4. Sovereign Bonds 66
5. Non-Sovereign Government, Quasi-Government, and Supranational Bonds 69
6. Corporate Debt 71
7. Short-Term Funding Alternatives Available to Banks 80
8. Summary 86
Problems 88
CHAPTER 3 Introduction to Fixed-Income Valuation 91
Learning Outcomes 91
1. Introduction 91
2. Bond Prices and the Time Value of Money 92
3. Prices and Yields: Conventions for Quotes and Calculations 105
4. The Maturity Structure of Interest Rates 128
5. Yield Spreads 136
6. Summary 141
Problems 143
PART II Analysis of Risk
CHAPTER 4 Understanding Fixed-Income Risk and Return 153
Learning Outcomes 153
1. Introduction 154
2. Sources of Return 154
3. Interest Rate Risk on Fixed-Rate Bonds 162
4. Interest Rate Risk and the Investment Horizon 195
5. Credit and Liquidity Risk 201
6. Summary 202
Problems 205
CHAPTER 5 Fundamentals of Credit Analysis 211
Learning Outcomes 211
1. Introduction 211
2. Credit Risk 212
3. Capital Structure, Seniority Ranking, and Recovery Rates 214
4. Ratings Agencies, Credit Ratings, and Their Role in the Debt Markets 220
5. Traditional Credit Analysis: Corporate Debt Securities 229
6. Credit Risk vs. Return: Yields and Spreads 249
7. Special Considerations of High-Yield, Sovereign, and Non-Sovereign Credit Analysis 258
8. Summary 272
Problems 275
CHAPTER 6 Credit Analysis Models 279
Learning Outcomes 279
1. Introduction 279
2. Measures of Credit Risk 281
3. Traditional Credit Models 283
4. Structural Models 289
5. Reduced Form Models 297
6. The Term Structure of Credit Spreads 308
7. Asset-Backed Securities 315
8. Summary 317
References 318
Problems 318
PART III Asset-Backed Securities
CHAPTER 7 Introduction to Asset-Backed Securities 323
Learning Outcomes 323
1. Introduction 323
2. Benefits of Securitization for Economies and Financial Markets 324
3. The Securitization Process 326
4. Residential Mortgage Loans 335
5. Residential Mortgage-Backed Securities 338
6. Commercial Mortgage-Backed Securities 352
7. Non-Mortgage Asset-Backed Securities 355
8. Collateralized Debt Obligations 359
9. Summary 363
References 365
Problems 365
PART IV Valuation
CHAPTER 8 The Arbitrage-Free Valuation Framework 371
Learning Outcomes 371
1. Introduction 371
2. The Meaning of Arbitrage-Free Valuation 372
3. Interest Rate Trees and Arbitrage-Free Valuation 375
4. Monte Carlo Method 393
5. Summary 395
Problems 396
CHAPTER 9 Valuation and Analysis: Bonds with Embedded Options 401
Learning Outcomes 401
1. Introduction 402
2. Overview of Embedded Options 402
3. Valuation and Analysis of Callable and Putable Bonds 407
4. Interest Rate Risk of Bonds with Embedded Options 432
5. Valuation and Analysis of Capped and Floored Floating-Rate Bonds 444
6. Valuation and Analysis of Convertible Bonds 450
7. Bond Analytics 462
8. Summary 463
Problems 465
PART V Term Structure Analysis
CHAPTER 10 The Term Structure and Interest Rate Dynamics 473
Learning Outcomes 473
1. Introduction 474
2. Spot Rates and Forward Rates 474
3. The Swap Rate Curve 493
4. Traditional Theories of the Term Structure of Interest Rates 502
5. Modern Term Structure Models 507
6. Yield Curve Factor Models 515
7. Summary 524
References 525
Problems 525
PART VI Fixed-Income Portfolio Management
CHAPTER 11 Fixed-Income Portfolio Management--Part I 531
Learning Outcomes 531
1. Introduction 532
2. A Framework for Fixed-Income Portfolio Management 532
3. Managing Funds against a Bond Market Index 534
4. Managing Funds against Liabilities 555
5. Summary 578
Problems 580
CHAPTER 12 Fixed-Income Portfolio Management--Part II 585
Learning Outcomes 585
5. Other Fixed-Income Strategies 586
6. International Bond Investing 608
7. Selecting a Fixed-Income Manager 620
8. Summary 624
Problems 625
CHAPTER 13 Relative-Value Methodologies for Global Credit Bond Portfolio Management 633
Learning Outcomes 633
1. Introduction 633
2. Credit Relative-Value Analysis 636
A. Relative Value 638
B. Classic Relative-Value Analysis 638
C. Relative-Value Methodologies 640
3. Total Return Analysis 640
4. Primary Market Analysis 640
A. The Effect of Market-Structure Dynamics 641
B. The Effect of Product Structure 641
5. Liquidity and Trading Analysis 642
6. Secondary Trade Rationales 642
A. Popular Reasons for Trading 643
B. Trading Constraints 645
7. Spread Analysis 647
A. Alternative Spread Measures 647
B. Closer Look at Swap Spreads 648
C. Spread Tools 649
8. Structural Analysis 650
A. Bullets 651
B. Callables 652
C. Sinking Funds 652
D. Putables 653
9. Credit Curve Analysis 654
10. Credit Analysis 655
11. Asset Allocation/Sector Rotation 655
12. Summary 657
Problems 658
Glossary 667
About the Editors and Authors 683
About the CFA Program 691
Index 693
Foreword xv
Preface xvii
Acknowledgments xix
About the CFA Investment Series xxi
PART I Fixed-Income Essentials
CHAPTER 1 Fixed-Income Securities: Defining Elements 3
Learning Outcomes 3
1. Introduction 3
2. Overview of a Fixed-Income Security 4
3. Legal, Regulatory, and Tax Considerations 10
4. Structure of a Bond's Cash Flows 23
5. Bonds with Contingency Provisions 34
6. Summary 41
Problems 43
CHAPTER 2 Fixed-Income Markets: Issuance, Trading, and Funding 45
Learning Outcomes 45
1. Introduction 45
2. Overview of Global Fixed-Income Markets 46
3. Primary and Secondary Bond Markets 58
4. Sovereign Bonds 66
5. Non-Sovereign Government, Quasi-Government, and Supranational Bonds 69
6. Corporate Debt 71
7. Short-Term Funding Alternatives Available to Banks 80
8. Summary 86
Problems 88
CHAPTER 3 Introduction to Fixed-Income Valuation 91
Learning Outcomes 91
1. Introduction 91
2. Bond Prices and the Time Value of Money 92
3. Prices and Yields: Conventions for Quotes and Calculations 105
4. The Maturity Structure of Interest Rates 128
5. Yield Spreads 136
6. Summary 141
Problems 143
PART II Analysis of Risk
CHAPTER 4 Understanding Fixed-Income Risk and Return 153
Learning Outcomes 153
1. Introduction 154
2. Sources of Return 154
3. Interest Rate Risk on Fixed-Rate Bonds 162
4. Interest Rate Risk and the Investment Horizon 195
5. Credit and Liquidity Risk 201
6. Summary 202
Problems 205
CHAPTER 5 Fundamentals of Credit Analysis 211
Learning Outcomes 211
1. Introduction 211
2. Credit Risk 212
3. Capital Structure, Seniority Ranking, and Recovery Rates 214
4. Ratings Agencies, Credit Ratings, and Their Role in the Debt Markets 220
5. Traditional Credit Analysis: Corporate Debt Securities 229
6. Credit Risk vs. Return: Yields and Spreads 249
7. Special Considerations of High-Yield, Sovereign, and Non-Sovereign Credit Analysis 258
8. Summary 272
Problems 275
CHAPTER 6 Credit Analysis Models 279
Learning Outcomes 279
1. Introduction 279
2. Measures of Credit Risk 281
3. Traditional Credit Models 283
4. Structural Models 289
5. Reduced Form Models 297
6. The Term Structure of Credit Spreads 308
7. Asset-Backed Securities 315
8. Summary 317
References 318
Problems 318
PART III Asset-Backed Securities
CHAPTER 7 Introduction to Asset-Backed Securities 323
Learning Outcomes 323
1. Introduction 323
2. Benefits of Securitization for Economies and Financial Markets 324
3. The Securitization Process 326
4. Residential Mortgage Loans 335
5. Residential Mortgage-Backed Securities 338
6. Commercial Mortgage-Backed Securities 352
7. Non-Mortgage Asset-Backed Securities 355
8. Collateralized Debt Obligations 359
9. Summary 363
References 365
Problems 365
PART IV Valuation
CHAPTER 8 The Arbitrage-Free Valuation Framework 371
Learning Outcomes 371
1. Introduction 371
2. The Meaning of Arbitrage-Free Valuation 372
3. Interest Rate Trees and Arbitrage-Free Valuation 375
4. Monte Carlo Method 393
5. Summary 395
Problems 396
CHAPTER 9 Valuation and Analysis: Bonds with Embedded Options 401
Learning Outcomes 401
1. Introduction 402
2. Overview of Embedded Options 402
3. Valuation and Analysis of Callable and Putable Bonds 407
4. Interest Rate Risk of Bonds with Embedded Options 432
5. Valuation and Analysis of Capped and Floored Floating-Rate Bonds 444
6. Valuation and Analysis of Convertible Bonds 450
7. Bond Analytics 462
8. Summary 463
Problems 465
PART V Term Structure Analysis
CHAPTER 10 The Term Structure and Interest Rate Dynamics 473
Learning Outcomes 473
1. Introduction 474
2. Spot Rates and Forward Rates 474
3. The Swap Rate Curve 493
4. Traditional Theories of the Term Structure of Interest Rates 502
5. Modern Term Structure Models 507
6. Yield Curve Factor Models 515
7. Summary 524
References 525
Problems 525
PART VI Fixed-Income Portfolio Management
CHAPTER 11 Fixed-Income Portfolio Management--Part I 531
Learning Outcomes 531
1. Introduction 532
2. A Framework for Fixed-Income Portfolio Management 532
3. Managing Funds against a Bond Market Index 534
4. Managing Funds against Liabilities 555
5. Summary 578
Problems 580
CHAPTER 12 Fixed-Income Portfolio Management--Part II 585
Learning Outcomes 585
5. Other Fixed-Income Strategies 586
6. International Bond Investing 608
7. Selecting a Fixed-Income Manager 620
8. Summary 624
Problems 625
CHAPTER 13 Relative-Value Methodologies for Global Credit Bond Portfolio Management 633
Learning Outcomes 633
1. Introduction 633
2. Credit Relative-Value Analysis 636
A. Relative Value 638
B. Classic Relative-Value Analysis 638
C. Relative-Value Methodologies 640
3. Total Return Analysis 640
4. Primary Market Analysis 640
A. The Effect of Market-Structure Dynamics 641
B. The Effect of Product Structure 641
5. Liquidity and Trading Analysis 642
6. Secondary Trade Rationales 642
A. Popular Reasons for Trading 643
B. Trading Constraints 645
7. Spread Analysis 647
A. Alternative Spread Measures 647
B. Closer Look at Swap Spreads 648
C. Spread Tools 649
8. Structural Analysis 650
A. Bullets 651
B. Callables 652
C. Sinking Funds 652
D. Putables 653
9. Credit Curve Analysis 654
10. Credit Analysis 655
11. Asset Allocation/Sector Rotation 655
12. Summary 657
Problems 658
Glossary 667
About the Editors and Authors 683
About the CFA Program 691
Index 693
Preface xvii
Acknowledgments xix
About the CFA Investment Series xxi
PART I Fixed-Income Essentials
CHAPTER 1 Fixed-Income Securities: Defining Elements 3
Learning Outcomes 3
1. Introduction 3
2. Overview of a Fixed-Income Security 4
3. Legal, Regulatory, and Tax Considerations 10
4. Structure of a Bond's Cash Flows 23
5. Bonds with Contingency Provisions 34
6. Summary 41
Problems 43
CHAPTER 2 Fixed-Income Markets: Issuance, Trading, and Funding 45
Learning Outcomes 45
1. Introduction 45
2. Overview of Global Fixed-Income Markets 46
3. Primary and Secondary Bond Markets 58
4. Sovereign Bonds 66
5. Non-Sovereign Government, Quasi-Government, and Supranational Bonds 69
6. Corporate Debt 71
7. Short-Term Funding Alternatives Available to Banks 80
8. Summary 86
Problems 88
CHAPTER 3 Introduction to Fixed-Income Valuation 91
Learning Outcomes 91
1. Introduction 91
2. Bond Prices and the Time Value of Money 92
3. Prices and Yields: Conventions for Quotes and Calculations 105
4. The Maturity Structure of Interest Rates 128
5. Yield Spreads 136
6. Summary 141
Problems 143
PART II Analysis of Risk
CHAPTER 4 Understanding Fixed-Income Risk and Return 153
Learning Outcomes 153
1. Introduction 154
2. Sources of Return 154
3. Interest Rate Risk on Fixed-Rate Bonds 162
4. Interest Rate Risk and the Investment Horizon 195
5. Credit and Liquidity Risk 201
6. Summary 202
Problems 205
CHAPTER 5 Fundamentals of Credit Analysis 211
Learning Outcomes 211
1. Introduction 211
2. Credit Risk 212
3. Capital Structure, Seniority Ranking, and Recovery Rates 214
4. Ratings Agencies, Credit Ratings, and Their Role in the Debt Markets 220
5. Traditional Credit Analysis: Corporate Debt Securities 229
6. Credit Risk vs. Return: Yields and Spreads 249
7. Special Considerations of High-Yield, Sovereign, and Non-Sovereign Credit Analysis 258
8. Summary 272
Problems 275
CHAPTER 6 Credit Analysis Models 279
Learning Outcomes 279
1. Introduction 279
2. Measures of Credit Risk 281
3. Traditional Credit Models 283
4. Structural Models 289
5. Reduced Form Models 297
6. The Term Structure of Credit Spreads 308
7. Asset-Backed Securities 315
8. Summary 317
References 318
Problems 318
PART III Asset-Backed Securities
CHAPTER 7 Introduction to Asset-Backed Securities 323
Learning Outcomes 323
1. Introduction 323
2. Benefits of Securitization for Economies and Financial Markets 324
3. The Securitization Process 326
4. Residential Mortgage Loans 335
5. Residential Mortgage-Backed Securities 338
6. Commercial Mortgage-Backed Securities 352
7. Non-Mortgage Asset-Backed Securities 355
8. Collateralized Debt Obligations 359
9. Summary 363
References 365
Problems 365
PART IV Valuation
CHAPTER 8 The Arbitrage-Free Valuation Framework 371
Learning Outcomes 371
1. Introduction 371
2. The Meaning of Arbitrage-Free Valuation 372
3. Interest Rate Trees and Arbitrage-Free Valuation 375
4. Monte Carlo Method 393
5. Summary 395
Problems 396
CHAPTER 9 Valuation and Analysis: Bonds with Embedded Options 401
Learning Outcomes 401
1. Introduction 402
2. Overview of Embedded Options 402
3. Valuation and Analysis of Callable and Putable Bonds 407
4. Interest Rate Risk of Bonds with Embedded Options 432
5. Valuation and Analysis of Capped and Floored Floating-Rate Bonds 444
6. Valuation and Analysis of Convertible Bonds 450
7. Bond Analytics 462
8. Summary 463
Problems 465
PART V Term Structure Analysis
CHAPTER 10 The Term Structure and Interest Rate Dynamics 473
Learning Outcomes 473
1. Introduction 474
2. Spot Rates and Forward Rates 474
3. The Swap Rate Curve 493
4. Traditional Theories of the Term Structure of Interest Rates 502
5. Modern Term Structure Models 507
6. Yield Curve Factor Models 515
7. Summary 524
References 525
Problems 525
PART VI Fixed-Income Portfolio Management
CHAPTER 11 Fixed-Income Portfolio Management--Part I 531
Learning Outcomes 531
1. Introduction 532
2. A Framework for Fixed-Income Portfolio Management 532
3. Managing Funds against a Bond Market Index 534
4. Managing Funds against Liabilities 555
5. Summary 578
Problems 580
CHAPTER 12 Fixed-Income Portfolio Management--Part II 585
Learning Outcomes 585
5. Other Fixed-Income Strategies 586
6. International Bond Investing 608
7. Selecting a Fixed-Income Manager 620
8. Summary 624
Problems 625
CHAPTER 13 Relative-Value Methodologies for Global Credit Bond Portfolio Management 633
Learning Outcomes 633
1. Introduction 633
2. Credit Relative-Value Analysis 636
A. Relative Value 638
B. Classic Relative-Value Analysis 638
C. Relative-Value Methodologies 640
3. Total Return Analysis 640
4. Primary Market Analysis 640
A. The Effect of Market-Structure Dynamics 641
B. The Effect of Product Structure 641
5. Liquidity and Trading Analysis 642
6. Secondary Trade Rationales 642
A. Popular Reasons for Trading 643
B. Trading Constraints 645
7. Spread Analysis 647
A. Alternative Spread Measures 647
B. Closer Look at Swap Spreads 648
C. Spread Tools 649
8. Structural Analysis 650
A. Bullets 651
B. Callables 652
C. Sinking Funds 652
D. Putables 653
9. Credit Curve Analysis 654
10. Credit Analysis 655
11. Asset Allocation/Sector Rotation 655
12. Summary 657
Problems 658
Glossary 667
About the Editors and Authors 683
About the CFA Program 691
Index 693