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Fixed Income Securities: Valuation, Risk, and Risk Management

Fixed Income Securities: Valuation, Risk, and Risk Management

Pietro Veronesi

ISBN: 978-0-470-58689-1

Jan 2010

848 pages



The deep understanding of the forces that affect the valuation, risk and return of fixed income securities and their derivatives has never been so important. As the world of fixed income securities becomes more complex, anybody who studies fixed income securities must be exposed more directly to this complexity.

This book provides a thorough discussion of these complex securities, the forces affecting their prices, their risks, and of the appropriate risk management practices. Fixed Income Securities, however, provides a methodology, and not a "shopping list" of all the possible interest rate securities ever been invented. It provides instead examples and methodologies that can be applied quite universally, once the basic concepts have been understood.

Related Resources




1 An Introduction to Fixed Income Markets.

2 Basics of Fixed Income Securities.

3 Basics of Interest Rate Risk Management.

4 Basic Refinements in Interest Rate Risk Management.

5 Interest Rate Derivatives: Forwards and Swaps.

6 Interest Rate Derivatives: Futures and Options.

7 Inflation, Monetary Policy, and the Federal Funds Rate.

8 Basics of Residential Mortgage Backed Securities.


9 One Step Binomial Trees.

10 Multi-Step Binomial Trees.

11 Risk Neutral Trees and Derivative Pricing.

12 American Options.

13 Monte Carlo Simulations on Trees.


14 Interest Rate Models in Continuous Time.

15 No Arbitrage and the Pricing of Interest Rate Securities.

16 Dynamic Hedging and Relative Value Trades.

17 Risk Neutral Pricing and Monte Carlo Simulations.

18 The Risk and Return of Interest Rate Securities.

19 No Arbitrage Models and Standard Derivatives.

20 The Market Model for Standard Derivatives.

21 Forward Risk Neutral Pricing and the LIBOR Market Model.

22 Multifactor Models.



  • The basics of fixed income pricing, risk and risk management.
  • Introduction to the concept of term structure modeling and no arbitrage strategies.  
  • The Federal Reserve system, and the relation between interest rates, the real economy, and inflation.
  • The analysis of fixed income securities relying on binomial tree models of the term structure.
  • Pricing and hedging by Monte Carlo simulations on binomial trees.
  • More advanced  term structure models that rely on continuous time mathematics.
  • This book aims at clarifying two important issues:
    • First, models have parameters and parameters need data to be estimated.
    • Second, models are “just models”, and they are always an incomplete description of a much more complex real world.
  • All chapters include real-world examples and case studies.
  • End-of-chapter exercises using real-world data and real-world securities cement the important concepts.