Additional Information
Book Details
Abstract
For students enrolled in Fixed Income Securities Courses or Bond Markets Courses.
An applied approach to understanding bond markets.
Through its applied approach, Fabozzi's Bond Markets prepares students to analyze the bond market and manage bond portfolios without getting bogged down in the theory.
This edition has been streamlined and updated with new content, and features overall enhancements based on previous editions’ reader and instructor feedback.
Table of Contents
| Section Title | Page | Action | Price |
|---|---|---|---|
| Cover | Cover | ||
| Contents | 4 | ||
| Preface | 7 | ||
| 1 Introduction | 11 | ||
| Learning Objectives | 11 | ||
| Sectors of the U.S. Bond Market | 12 | ||
| Overview of Bond Features | 13 | ||
| Risks Associated with Investing in Bonds | 18 | ||
| Overview of the Book | 21 | ||
| Questions | 22 | ||
| 2 Pricing of Bonds | 24 | ||
| Learning Objectives | 24 | ||
| Review of Time Value of Money | 24 | ||
| Pricing a Bond | 30 | ||
| Complications | 36 | ||
| Pricing Floating-Rate and Inverse-Floating-Rate Securities | 38 | ||
| Price Quotes and Accrued Interest | 40 | ||
| Key Points | 41 | ||
| Questions | 42 | ||
| 3 Measuring Yield | 44 | ||
| Learning Objectives | 44 | ||
| Computing the Yield or Internal Rate of Return on Any Investment | 45 | ||
| Conventional Yield Measures | 48 | ||
| Potential Sources of a Bond's Dollar Return | 56 | ||
| Total Return | 59 | ||
| Applications of the Total Return (Horizon Analysis) | 64 | ||
| Calculating Yield Changes | 64 | ||
| Key Points | 65 | ||
| Questions | 65 | ||
| 4 Bond Price Volatility | 68 | ||
| Learning Objectives | 68 | ||
| Review of the Price–Yield Relationship for Option-Free Bonds | 69 | ||
| Price Volatility Characteristics of Option-Free Bonds | 70 | ||
| Measures of Bond Price Volatility | 72 | ||
| Convexity | 83 | ||
| Additional Concerns When Using Duration | 92 | ||
| Do not Think of Duration as a Measure of Time | 92 | ||
| Approximating a Bond's Duration and Convexity Measure | 93 | ||
| Measuring a Bond Portfolio's Responsiveness to Nonparallel Changes in Interest Rates | 95 | ||
| Key Points | 99 | ||
| Questions | 100 | ||
| 5 Factors Affecting Bond Yields and the Term Structure of Interest Rates | 102 | ||
| Learning Objectives | 102 | ||
| Base Interest Rate | 103 | ||
| Benchmark Spread | 103 | ||
| Term Structure of Interest Rates | 109 | ||
| Swap Rate Yield Curve | 129 | ||
| Key Points | 131 | ||
| Questions | 132 | ||
| 6 Treasury and Federal Agency Securities | 136 | ||
| Learning Objectives | 136 | ||
| Treasury Securities | 136 | ||
| Stripped Treasury Securities | 145 | ||
| Federal Agency Securities | 146 | ||
| Key Points | 149 | ||
| Questions | 150 | ||
| 7 Corporate Debt Instruments | 152 | ||
| Learning Objectives | 152 | ||
| Seniority of Debt in a Corporation's Capital Structure | 153 | ||
| Bankruptcy and Creditor Rights | 154 | ||
| Corporate Bonds | 156 | ||
| Medium-Term Notes | 163 | ||
| Commercial Paper | 167 | ||
| Bank Loans | 169 | ||
| Corporate Default Risk | 173 | ||
| Corporate Downgrade Risk | 177 | ||
| Corporate Credit Spread Risk | 177 | ||
| Key Points | 178 | ||
| Questions | 179 | ||
| 8 Municipal Securities | 182 | ||
| Learning Objectives | 182 | ||
| Types and Features of Municipal Securities | 183 | ||
| Municipal Money Market Products | 188 | ||
| Floaters/Inverse Floaters | 189 | ||
| Credit Risk | 190 | ||
| Risks Associated with Investing in Municipal Securities | 191 | ||
| Yields on Municipal Bonds | 192 | ||
| Municipal Bond Market | 193 | ||
| The Taxable Municipal Bond Market | 195 | ||
| Key Points | 195 | ||
| Questions | 196 | ||
| 9 International Bonds | 198 | ||
| Learning Objectives | 198 | ||
| Classification of Global Bond Markets | 199 | ||
| Non-U.S. Bond Issuers and Bond Structures | 200 | ||
| Foreign Exchange Risk and Bond Returns | 202 | ||
| Bonds Issued by Non-U.S. Entities | 206 | ||
| Key Points | 220 | ||
| Questions | 221 | ||
| 10 Residential Mortgage Loans | 223 | ||
| Learning Objectives | 223 | ||
| Origination of Residential Mortgage Loans | 224 | ||
| Types of Residential Mortgage Loans | 225 | ||
| Conforming Loans | 233 | ||
| Risks Associated with Investing in Mortgage Loans | 234 | ||
| Key Points | 235 | ||
| Questions | 235 | ||
| 11 Agency Mortgage Pass-Through Securities | 237 | ||
| Learning Objectives | 237 | ||
| Sectors of the Residential Mortgage-Backed Security Market | 238 | ||
| General Description of an Agency Mortgage Pass-Through Security | 239 | ||
| Issuers of Agency Pass-Through Securities | 241 | ||
| Prepayment Conventions and Cash Flow | 245 | ||
| Factors Affecting Prepayments and Prepayment Modeling | 255 | ||
| Cash Flow Yield | 260 | ||
| Prepayment Risk and Asset/Liability Management | 262 | ||
| Secondary Market Trading | 264 | ||
| Key Points | 265 | ||
| Questions | 266 | ||
| 12 Agency Collateralized Mortgage Obligations and Stripped Mortgage-Backed Securities | 269 | ||
| Learning Objectives | 269 | ||
| Agency Collateralized Mortgage Obligations | 270 | ||
| Agency Stripped Mortgage-Backed Securities | 303 | ||
| Key Points | 305 | ||
| Questions | 306 | ||
| 13 Nonagency Residential Mortgage-Backed Securities | 309 | ||
| Learning Objectives | 309 | ||
| Collateral Types | 311 | ||
| Credit Enhancement | 311 | ||
| Cash Flow for Nonagency Mortgage-Backed Securities | 317 | ||
| Key Points | 322 | ||
| Questions | 323 | ||
| 14 Commercial Mortgage Loans and Commercial Mortgage-Backed Securities | 325 | ||
| Learning Objectives | 325 | ||
| Commercial Mortgage Loans | 326 | ||
| Commercial Mortgage-Backed Securities | 328 | ||
| Types of Deals | 333 | ||
| Key Points | 337 | ||
| Questions | 338 | ||
| 15 Asset-Backed Securities | 340 | ||
| Learning Objectives | 340 | ||
| Creation of an Asset-Backed Security | 341 | ||
| Collateral Type and Securitization Structure | 346 | ||
| Credit Risks Associated with Investing in Asset-Backed Securities | 347 | ||
| Review of Several Major Types of Asset-Backed Securities | 350 | ||
| Dodd-Frank Wall Street Reform and Consumer Protection Act | 357 | ||
| Collateralized Debt Obligations | 358 | ||
| Key Points | 360 | ||
| Questions | 361 | ||
| 16 Interest-Rate Models | 363 | ||
| Learning Objectives | 363 | ||
| Mathematical Description of One-Factor Interest-Rate Models | 364 | ||
| Arbitrage-Free versus Equilibrium Models | 367 | ||
| Empirical Evidence on Interest-Rate Changes | 369 | ||
| Selecting an Interest-Rate Model | 371 | ||
| Estimating Interest-Rate Volatility Using Historical Data | 372 | ||
| Key Points | 375 | ||
| Questions | 376 | ||
| 17 Analysis of Bonds with Embedded Options | 377 | ||
| Learning Objectives | 377 | ||
| Drawbacks of Traditional Yield Spread Analysis | 378 | ||
| Static Spread: An Alternative to Yield Spread | 378 | ||
| Callable Bonds and Their Investment Characteristics | 383 | ||
| Components of a Bond with an Embedded Option | 385 | ||
| Valuation Model | 387 | ||
| Option-Adjusted Spread | 400 | ||
| Effective Duration and Convexity | 400 | ||
| Key Points | 402 | ||
| Questions | 403 | ||
| 18 Analysis of Residential Mortgage-Backed Securities | 405 | ||
| Learning Objectives | 405 | ||
| Static Cash Flow Yield Methodology | 406 | ||
| Monte Carlo Simulation Methodology | 414 | ||
| Total Return Analysis | 424 | ||
| Key Points | 425 | ||
| Questions | 426 | ||
| 19 Analysis of Convertible Bonds | 428 | ||
| Learning Objectives | 428 | ||
| Convertible Bond Provisions | 429 | ||
| Categorization of Convertible Securities | 430 | ||
| Basic Analytics and Concepts for Convertible Bond Analysis | 432 | ||
| Option Measures | 436 | ||
| Profile of a Convertible Bond | 438 | ||
| Pros and Cons of Investing in a Convertible Bond | 438 | ||
| Convertible Bond Arbitrage | 440 | ||
| Options Approach to Valuation | 442 | ||
| Key Points | 443 | ||
| Questions | 444 | ||
| 20 Corporate Bond Credit Analysis | 446 | ||
| Learning Objectives | 446 | ||
| Overview of Corporate Bond Credit Analysis | 447 | ||
| Analysis of Business Risk | 449 | ||
| Corporate Governance Risk | 450 | ||
| Financial Risk | 452 | ||
| Corporate Bond Credit Analysis and Equity Analysis | 455 | ||
| Key Points | 456 | ||
| Questions | 456 | ||
| 21 Credit Risk Modeling | 458 | ||
| Learning Objectives | 458 | ||
| Difficulties in Credit Risk Modeling | 459 | ||
| Overview of Credit Risk Modeling | 460 | ||
| Credit Ratings versus Credit Risk Models | 461 | ||
| Structural Models | 461 | ||
| Estimating Portfolio Credit Risk: Default Correlation and Copulas | 467 | ||
| Reduced-Form Models | 468 | ||
| Incomplete Information Models | 471 | ||
| Key Points | 471 | ||
| Questions | 472 | ||
| 22 Bond Portfolio Management Strategies | 473 | ||
| Learning Objectives | 473 | ||
| The Asset Allocation Decision | 474 | ||
| Portfolio Management Team | 476 | ||
| Spectrum of Bond Portfolio Strategies | 477 | ||
| Bond Indexes | 479 | ||
| The Primary Risk Factors | 481 | ||
| Top-Down Versus Bottom-Up Portfolio Construction and Management | 482 | ||
| Active Portfolio Strategies | 483 | ||
| The Use of Leverage | 500 | ||
| Key Points | 506 | ||
| Questions | 507 | ||
| 23 Bond Portfolio Construction | 511 | ||
| Learning Objectives | 511 | ||
| Brief Review of Portfolio Theory and Risk Decomposition | 512 | ||
| Application of Portfolio Theory to Bond Portfolio Construction | 513 | ||
| Tracking Error | 515 | ||
| Cell-Based Approach to Bond Portfolio Construction | 519 | ||
| Portfolio Construction with Multi-Factor Models | 521 | ||
| Key Points | 536 | ||
| Questions | 536 | ||
| 24 Liability-Driven Strategies | 541 | ||
| Learning Objectives | 541 | ||
| General Principles of Asset/Liability Management | 542 | ||
| Immunization of a Portfolio to Satisfy a Single Liability | 548 | ||
| Structuring a Portfolio to Satisfy Multiple Liabilities | 562 | ||
| Extensions of Liability-Driven Strategies | 565 | ||
| Combining Active and Immunization Strategies | 566 | ||
| Liability-Driven Strategies for Defined Benefit Pension Funds | 567 | ||
| Key Points | 569 | ||
| Questions | 570 | ||
| 25 Bond Performance Measurement and Evaluation | 575 | ||
| Learning Objectives | 575 | ||
| Requirements for a Bond Performance and Attribution Analysis Process | 576 | ||
| Performance Measurement | 576 | ||
| Performance Attribution Analysis | 582 | ||
| Key Points | 587 | ||
| Questions | 588 | ||
| 26 Interest-Rate Futures Contracts | 590 | ||
| Learning Objectives | 590 | ||
| Mechanics of Futures Trading | 591 | ||
| Futures Versus Forward Contracts | 593 | ||
| Risk and Return Characteristics of Futures Contracts | 593 | ||
| Interest-Rate Futures Contracts | 594 | ||
| Pricing and Arbitrage in the Interest-Rate Futures Market | 600 | ||
| Bond Portfolio Management Applications | 606 | ||
| Key Points | 624 | ||
| Questions | 625 | ||
| 27 Interest-Rate Options | 627 | ||
| Learning Objectives | 627 | ||
| Options Defined | 628 | ||
| Differences between an Option and a Futures Contract | 628 | ||
| Types of Interest-Rate Options | 628 | ||
| Intrinsic Value and Time Value of an Option | 631 | ||
| Profit and Loss Profiles for Simple Naked Option Strategies | 632 | ||
| Put-Call Parity Relationship and Equivalent Positions | 644 | ||
| Option Price | 646 | ||
| Models for Pricing Options | 647 | ||
| Sensitivity of Option Price to Change in Factors | 656 | ||
| Hedge Strategies | 660 | ||
| Key Points | 666 | ||
| Questions | 667 | ||
| 28 Interest-Rate Swaps, Caps, and Floors | 669 | ||
| Learning Objectives | 669 | ||
| Interest-Rate Swaps | 670 | ||
| Interest-Rate Caps and Floors | 692 | ||
| Key Points | 698 | ||
| Questions | 699 | ||
| 29 Credit Default Swaps | 702 | ||
| Learning Objectives | 702 | ||
| Credit Events | 703 | ||
| Single-Name CDS | 706 | ||
| Index CDS | 712 | ||
| Economic Interpretation of a CDS and an Index CDS | 714 | ||
| Using CDSs for Controlling Credit Risk | 716 | ||
| Key Points | 717 | ||
| Questions | 718 | ||
| Index | 720 | ||
| A | 720 | ||
| B | 721 | ||
| C | 722 | ||
| D | 726 | ||
| E | 727 | ||
| F | 727 | ||
| G | 729 | ||
| H | 729 | ||
| I | 730 | ||
| J | 731 | ||
| K | 731 | ||
| L | 731 | ||
| M | 732 | ||
| N | 733 | ||
| O | 734 | ||
| P | 734 | ||
| Q | 736 | ||
| R | 736 | ||
| S | 737 | ||
| T | 739 | ||
| U | 740 | ||
| V | 740 | ||
| W | 740 | ||
| Y | 741 | ||
| Z | 741 |