Fixed Income Analysis, 2nd Edition

by Frank J. Fabozzi (School of Management, Yale Univ.); Foreword by: Martin L. Leibowitz

ISBN13: 9780470635322

ISBN10: 0470635320

Format: eBook

Pub. Date: 2010-05-01

Publisher(s): Wiley

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Summary

In the Second Edition of Fixed Income Analysis, financial expert Frank Fabozzi and a team of knowledgeable contributors provide complete coverage of the most important issues in fixed income analysis. Now, in Fixed Income Analysis Workbook, Second Edition, Fabozzi offers you a wealth of practical information and exercises that will solidify your understanding of the tools and techniques associated with this discipline. This comprehensive study guide--which parallels the main book chapter by chapter--contains challenging problems and a complete set of solutions as well as concise learning outcome statements and summary overviews. If you want to make the most of your time in the fixed income marketplace, the lessons within this workbook can show you how. Topics reviewed include: The risks associated with investing in fixed income securities The fundamentals of valuation and interest rate risk The features of structured products--such as mortgage-backed securities and asset-backed securities The principles of credit analysis The valuation of fixed income securities with embedded options

Foreword
Acknowledgments
Introduction
Note on Rounding Differences
Features of Debt Securities
Introduction
Indenture and Covenants
Maturity
Par Value
Coupon Rate
Provisions for Paying Off Bonds
Conversion Privilege
Put Provision
Currency Denomination
Embedded Options
Borrowing Funds to Purchase Bonds
Risks Associated with Investing in Bonds
Introduction
Interest Rate Risk
Yield Curve Risk
Call and Prepayment Risk
Reinvestment Risk
Credit Risk
Liquidity Risk
Exchange Rate or Currency Risk
Inflation or Purchasing Power Risk
Volatility Risk
Event Risk
Sovereign Risk
Overview of Bond Sectors and Instruments
Introduction
Sectors of the Bond Market
Sovereign Bonds
Semi-Government/Agency Bonds
State and Local Governments
Corporate Debt Securities
Asset-Backed Securities
Collateralized Debt Obligations
Primary Market and Secondary Market for Bonds
Understanding Yield Spreads
Introduction
Interest Rate Determination
U.S. Treasury Rates
Yields on Non-Treasury Securities
Non-U.S. Interest Rates
Swap Spreads
Introduction to the Valuation of Debt Securities
Introduction
General Principles of Valuation
Traditional Approach to Valuation
The Arbitrage-Free Valuation Approach
Valuation Models
Yield Measures, Spot Rates, and Forward Rates
Introduction
Sources of Return
Traditional Yield Measures
Theoretical Spot Rates
Forward Rates
Introduction to the Measurement of Interest Rate Risk
Introduction
The Full Valuation Approach
Price Volatility Characteristics of Bonds
Duration
Convexity Adjustment
Price Value of a Basis Point
The Importance of Yield Volatility
Term Structure and Volatility of Interest Rates
Introduction
Historical Look at the Treasury Yield Curve
Treasury Returns Resulting from Yield Curve Movements
Constructing the Theoretical Spot Rate Curve for Treasuries
The Swap Curve (LIBOR Curve)
Expectations Theories of the Term Structure of Interest Rates
Measuring Yield Curve Risk
Yield Volatility and Measurement
Valuing Bonds with Embedded Options
Introduction
Elements of a Bond Valuation Model
Overview of the Bond Valuation Process
Review of How to Value an Option-Free Bond
Valuing a Bond with an Embedded Option Using the Binomial Model
Valuing and Analyzing a Callable Bond
Valuing a Putable Bond
Valuing a Step-Up Callable Note
Valuing a Capped Floater
Analysis of Convertible Bonds
Mortgage-Backed Sector of the Bond Market
Introduction
Residential Mortgage Loans
Mortgage Passthrough Securities
Collateralized Mortgage Obligations
Stripped Mortgage-Backed Securities
Nonagency Residential Mortgage-Backed Securities
Commercial Mortgage-Backed Securities
Asset-Backed Sector of the BondMarket
Introduction
The Securitization Process and Features of ABS
Home Equity Loans
Manufactured Housing-Backed Securities
Residential MBS Outside the United States
Auto Loan-Backed Securities
Student Loan-Backed Securities
SBA Loan-Backed Securities
Credit Card Receivable-Backed Securities
Collateralized Debt Obligations
ValuingMortgage-Backed and Asset-Backed Securities
Introduction
Cash Flow Yield Analysis
Zero-Volatility Spread
Monte Carlo Simulation Model and OAS
Measuring Interest Rate Risk
Valuing Asset-Backed Securities
Valuing Any Security
Interest Rate Derivative Instruments
Introduction
Interest Rate Futures
Interest Rate Options
Interest Rate Swaps
Interest Rate Caps and Floors
Valuation of Interest Rate Derivative Instruments
Introduction
Interest Rate Futures Contracts
Interest Rate Swaps
Options
Caps and Floors
General Principles of Credit Analysis
Introduction
Credit Ratings
Traditional Credit Analysis
Credit Scoring Models
Credit Risk Models
Appendix: Case Study
Introduction to Bond Portfolio Management
Introduction
Setting Investment Objectives for Fixed-Income Investors
Developing and Implementing a Portfolio Strategy
Monitoring the Portfolio
Adjusting the Portfolio
Measuring a Portfolio's Risk Profile
Introduction
Review of Standard Deviation and Downside Risk Measures
Tracking Error
Measuring a Portfolio's Interest Rate Risk
Measuring Yield Curve Risk
Spread Risk
Credit Risk
Optionality Risk for Non-MBS
Risks of Investing in Mortgage-Backed Securities
Multi-Factor Risk Models
Managing Funds against a Bond Market Index
Introduction
Degrees of Active Management
Strategies
Scenario Analysis for Assessing Potential Performance
Using Multi-Factor Risk Models in Portfolio Construction
Performance Evaluation
Leveraging Strategies
Portfolio Immunization and Cash Flow Matching
Introduction
Immunization Strategy for a Single Liability
Contingent Immunization
Immunization for Multiple Liabilities
Cash Flow Matching for Multiple Liabilities
Relative-ValueMethodologies for Global Credit Bond Portfolio Management
Introduction
Credit Relative-Value Analysis
Total Return Analysis
Primary Market Analysis
Liquidity and Trading Analysis
Secondary Trade Rationales
Spread Analysis
Structural Analysis
Credit Curve Analysis
Credit Analysis
Asset Allocation/Sector Rotation
International Bond Portfolio Management
Introduction
Investment Objectives and Policy Statements
Developing a Portfolio Strategy
Portfolio Construction
Appendix
Controlling Interest Rate Risk with Derivatives
Introduction
Controlling Interest Rate Risk with Futures
Controlling Interest Rate Risk with Swaps
Hedging with Options
Using Caps and Floors
HedgingMortgage Securities to Capture Relative Value
Introduction
The Problem
Mortgage Security Risks
How Interest Rates Change Over Time
Hedging Methodology
Hedging Cuspy-Coupon Mortgage Securities
Credit Derivatives in Bond Portfolio Management
Introduction
Market Participants
Why Credit Risk Is Important
Total Return Swap
Credit Default Products
Credit Spread Products
Synthetic Collateralized Debt Obligations
Basket Default Swaps
About the CFA Program
About the Author
About the Contributors
Index
Table of Contents provided by Publisher. All Rights Reserved.