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Fixed-Income Securities and Derivatives Handbook, 2nd Edition

Fixed-Income Securities and Derivatives Handbook, 2nd Edition

Moorad Choudhry

ISBN: 978-0-470-91111-2

May 2010

475 pages



The definitive guide to fixed-come securities-revised to reflect today's dynamic financial environment

The Second Edition of the Fixed-Income Securities and Derivatives Handbook offers a completely updated and revised look at an important area of today's financial world. In addition to providing an accessible description of the main elements of the debt market, concentrating on the instruments used and their applications, this edition takes into account the effect of the recent financial crisis on fixed income securities and derivatives.

As timely as it is timeless, the Second Edition of the Fixed-Income Securities and Derivatives Handbook includes a wealth of new material on such topics as covered and convertible bonds, swaps, synthetic securitization, and bond portfolio management, as well as discussions regarding new regulatory twists and the evolving derivatives market.

  • Offers a more detailed look at the basic principles of securitization and an updated chapter on collateralized debt obligations
  • Covers bond mathematics, pricing and yield analytics, and term structure models
  • Includes a new chapter on credit analysis and the different metrics used to measure bond-relative value
  • Contains illustrative case studies and real-world examples of the topics touched upon throughout the book

Written in a straightforward and accessible style, Moorad Choudhry's new book offers the ideal mix of practical tips and academic theory within this important field.




1 The Bond Instrument.

The Time Value of Money.

Bond Pricing and Yield: The Traditional Approach.

Accrued Interest.

2 Bond Instruments and Interest Rate Risk.

Duration, Modifi ed Duration, and Convexity.

3 Bond Pricing and Spot and Forward Rates.

Zero-Coupon Bonds.

Coupon Bonds.

Bond Price in Continuous Time.

Forward Rates.

Term Structure Hypotheses.

4 Interest Rate Modeling.

Basic Concepts.

One-Factor Term-Structure Models.

Further One-Factor Term-Structure Models.

Two-Factor Interest Rate Models.

Choosing a Term-Structure Model.

5 Fitting the Yield Curve.

Non-Parametric Methods.

Comparing Curves.

Fitting the Term Structure of Interest Rates: The Practical Implementation of Cubic Spline Methodology.

Cubic Spline Methodology.

The Hypothesis.

Practical Approach.

A Look at Forward Rates.



6 Forwards and Futures Valuation.

Forwards and Futures.

Forward-Spot Parity.

The Basis and Implied Repo Rate.

7 Swaps.

Interest Rate Swaps.

Generic Swap Valuation.

Non–Plain Vanilla Interest Rate Swaps.

Interest Rate Swap Applications.

8 Options.

Option Basics.

Option Instruments.

Option Pricing: Setting the Scene.

Option Pricing.

The Black-Scholes Option Model.

Other Option Models.

9 Measuring Option Risk.

Option Price Behavior.

The Greeks.

The Option Smile.

Caps and Floors.

10 Credit Derivatives.

Credit Risk.

Credit Risk and Credit Derivatives.

Credit Derivative Instruments.

Investment Applications.

Credit Derivatives and Relative Value Trading.

Credit-Derivative Pricing.

11 The Analysis of Bonds with Embedded Options.

12 Option-Adjusted Spread Analysis.

13 Convertible Bonds.

Basic Features.

Advantages of Issuing and Holding Convertibles.

Convertible Bond Valuation.

Pricing Spreadsheet.

14 Inflation-Indexed Bonds.

Basic Concepts.

Index-Linked Bond Cash Flows and Yields.

Analysis of Real Interest Rates.

15 Securitization and Asset-Backed Securities.

The Concept of Securitization.

The Process of Securitization.

Securitizing Mortgages.

Cash Flow Patterns.

ABS Structures: A Primer on Performance Metrics and Test Measures.

Securitization: Features of the 2007–2009 Financial Crisis.

16 Collateralized Debt Obligations.

CDO Structures.

Motivation Behind CDO Issuance.

Analysis and Evaluation.

Expected Loss.

CDO Market Overview Since 2005.


17 The Yield Curve, Bond Yield, and Spot Rates.

Practical Uses of Redemption Yield and Duration.

Illustrating Bond Yield Using a Microsoft Excel Spreadsheet.

Implied Spot Rates and Market Zero-Coupon Yields.

Implied Spot Yields and Zero-Coupon Bond Yields.

Determining Strip Values.

Strips Market Anomalies.

Strips Trading Strategy.

Case Study: Treasury Strip Yields and Cash Flow Analysis.

18 Approaches to Trading.

Futures Trading.

Yield Curves and Relative Value.

Characterizing the Complete Term Structure.

Hedging Bond Positions.

Summary of the Derivation of the Optimum-Hedge Equation.

19 Credit Analysis and Relative Value Measurement.

Credit Ratings.

Credit Analysis.

Industry-Specific Analysis.

The Art of Credit Analysis.

Bond Spreads and Relative Value.

Appendix I: The Black-Scholes Model in Microsoft Excel.

Appendix II: Iterative Formula Spreadsheet.

Appendix III: Pricing Spreadsheet.


About the Author.