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Fixed Income Relative Value Analysis: A Practitioners Guide to the Theory, Tools, and Trades, + Website

Fixed Income Relative Value Analysis: A Practitioners Guide to the Theory, Tools, and Trades, + Website

Doug Huggins , Christian Schaller

ISBN: 978-1-118-47721-2

May 2013

382 pages

$66.99

Description

As western governments issue increasing amounts of debt, the fixed income markets have never been more important. Yet the methods for analyzing these markets have failed to keep pace with recent developments, including the deterioration in the credit quality of many sovereign issuers. In Fixed Income Relative Value Analysis, Doug Huggins and Christian Schaller address this gap with a set of analytic tools for assessing value in the markets for government bonds, interest rate swaps, and related basis swaps, as well as associated futures and options.

Taking a practitioner’s point of view, the book presents the theory behind market analysis in connection with tools for finding and expressing trade ideas. The extensive use of actual market examples illustrates the ways these analytic tools can be applied in practice.

The book covers:

  • Statistical models for quantitative market analysis, in particular mean reversion models and principal component analysis.
  • An in-depth approach to understanding swap spreads in theory and in practice.
  • A comprehensive discussion of the various basis swaps and their combinations.
  • The incorporation of credit default swaps in yield curve analysis.
  • A classification of option trades, with appropriate analysis tools for each category.
  • Fitted curve techniques for identifying relative value among different bonds.
  • A multi-factor delivery option model for bond future contracts.

Fixed Income Relative Value Analysis provides an insightful presentation of the relevant statistical and financial theories, a detailed set of statistical and financial tools derived from these theories, and a multitude of actual trades resulting from the application of these tools to the fixed income markets. As such, it’s an indispensable guide for relative value analysts, relative value traders, and portfolio managers for whom security selection and hedging are part of the investment process.

Related Resources

Foreword by Henry Ritchotte

Relative Value: a Practitioner's Guide vii

INTRODUCTION

CHAPTER 1

Relative Value 1

PART I: STATISTICAL MODELS 17

CHAPTER 2

Mean Reversion 19

CHAPTER 3

Principal Component Analysis 51

PART II: FINANCIAL MODELS 113

CHAPTER 4

Some Comments on Yield, Duration, and Convexity 115

CHAPTER 5

Bond Futures Contracts 121

CHAPTER 6

LIBOR, OIS Rates, and Repo Rates 137

CHAPTER 7

Intra-Currency Basis Swaps 153

CHAPTER 8

Theoretical Determinants of Swap Spreads 157

CHAPTER 9

Swap Spreads from an Empirical Perspective 169

CHAPTER 10

Swap Spreads as Relative Value Indicators for

Government Bonds 185

CHAPTER 11

Fitted Bond Curves 193

CHAPTER 12

A Brief Comment on Interpolated Swap Spreads 207

CHAPTER 13

Cross-Currency Basis Swaps 211

CHAPTER 14

Relative Values of Bonds Denominated in Different

Currencies 223

CHAPTER 15

Credit Default Swaps 245

CHAPTER 16

USD Asset Swap Spreads versus Credit Default Swaps 273

CHAPTER 17

Options 299

EPILOGUE

CHAPTER 18

Relative Value in a Broader Perspective 349

Bibliography 357

Index 359