Preface to the First Edition.
About the author.
1 INTRODUCTION TO BONDS.
Outline of market participants.
Financial arithmetic: the time value of money.
Present value and discounting.
Discount factors and boot-strapping the discount function.
Bond pricing and yield: the traditional approach.
Clean and dirty bond prices.
Illustrating bond yield using Excel spreadsheets.
2 THE YIELD CURVE, SPOT AND FORWARD YIELDS.
The yield curve.
Yield-to-maturity yield curve.
The par yield curve.
The zero-coupon (or spot) yield curve.
The forward yield curve.
Theories of the yield curve.
Discount factors and the discount function.
The boot-strapping method: deriving the theoretical zero-coupon (spot) rate curve.
Implied forward rates.
Understanding forward rates.
The term structure of interest rates.
3 BOND INSTRUMENTS AND INTEREST-RATE RISK.
Duration, modified duration and convexity.
Properties of Macaulay duration.
4 FLOATING-RATE NOTES AND OTHER BOND INSTRUMENTS.
Synthetic convertible note.
Interest differential notes.
Example of IDN.
Benefits to investors.
Convertible quanto note.
Example of Japanese equity note.
5 THE MONEY MARKETS.
Securities quoted on a yield basis.
Money market deposits.
Certificates of deposit.
Securities quoted on a discount basis.
Eligible banker's acceptance.
Commercial paper programmes.
Commercial paper yields.
Asset-backed commercial paper.
The classic repo.
Examples of classic repo.
Examples of sell/buy-back.
5.A Currencies using money market year base of 365 days.
6 THE EUROBOND MARKET.
Floating rate notes.
The issue process: market participants.
The borrowing parties.
The underwriting lead manager.
The co-lead manager.
Fees, expenses and pricing.
Issuing the bond.
The grey market.
Alternative issue procedures.
Form of the bond.
Temporary global form.
Permanent global bond.
International Capital Market Association.
7 CONVERTIBLE BONDS, MTNs AND WARRANTS.
Value and premium issues.
Issuers and investors.
MTNs and corporate bonds.
8 CREDIT RATINGS.
Purpose of credit ratings.
Formal credit ratings.
Credit rating agencies and the 2007–2008 financial market crash.
9 INFLATION-LINKED BONDS.
Choice of index.
Type of indexation.
Index-linked bond cash flows and yields.
TIPS cash flow calculations.
TIPS price and yield calculations.
Assessing yields on index-linked bonds.
Which to hold: indexed or conventional bonds?
10 AN INTRODUCTION TO ASSET-BACKED SECURITIES.
The concept of securitisation.
Reasons for undertaking securitisation.
Benefits of securitisation to investors.
The process of securitisation.
Impact on balance sheet.
Illustrating the process of securitisation.
Securitisation post-credit crunch.
11 INTRODUCTION TO DERIVATIVE INSTRUMENTS.
Characteristics of IR swaps.
Swap spreads and the swap yield curve.
Summary of IR swap.
Cancelling a swap.
Zero-coupon swap pricing.
Hedging using bonds and swaps.
Bond futures contracts.
Arbitrage-free futures pricing.
Hedging using futures.
The hedge ratio.
Behaviour of option prices.
Using options in bond markets.
Hedging using bond options.
12 INTRODUCTION TO CREDIT DERIVATIVES.
Why use credit derivatives?
Classification of credit derivative instruments.
Definition of a credit event.
Credit default swaps.
Impact of the 2007-2008 credit crunch: new CDS contracts and the CDS 'Big Bang'.
Total return swaps.
Reduction in credit risk.
Capital structure arbitrage.
The TRS as a funding instrument.
The CDS iTraxx index.
General applications of credit derivatives.
Use of credit derivatives by portfolio managers.
The credit default swap basis.
A negative basis.
The basis as market indicator.
13 APPROACHES TO GOVERNMENT BOND TRADING AND YIELD ANALYSIS.
The determinants of yield.
Spread trade risk weighting.
Identifying yield spread trades.
Putting on the trade.
Bond spreads and relative value.
Summary of a fund manager's approach to value creation.
14 RISK MANAGEMENT AND VALUE-AT-RISK.
The risk management function.
Validity of the variance–covariance (correlation) VaR estimate.
Assessment of VaR tool.
VaR methodology for credit risk.
Modelling VaR for credit risk.
Applications of credit VaR.
List of abbreviations.