Donald J. Smith

Bond Math, + Website

The Theory Behind the Formulas

• Gebundenes Buch

Produktbeschreibung

A bond calculation quick reference, complete with context and application insights
Bond Math is a quick and easy resource that puts the intricacies of bond calculations into a clear and logical order. This simple, readable guide provides a handy reference, teaching the reader how to think about the essentials of bond math. Much more than just a book of formulas, the emphasis is on how to think about bonds and the associated math, with plenty of examples, anecdotes, and thought-provoking insights that sometimes run counter to conventional wisdom. This updated second edition includes popular Bloomberg pages used in fixed-income analysis, including the Yield and Spread Analysis page, plus a companion website complete with an Online Workbook of multiple choice questions and answers and spreadsheet exercises. Detailed coverage of key calculations, including thorough explanations, provide practical guidance to working bond professionals.

The bond market is the largest and most liquid in the world, encompassing everything from Treasuries and investment grade corporate paper to municipals and junk bonds, trading over $900 billion daily in the U.S. alone. Bond Math is a guide to the inevitable calculations involved in managing bonds, with expert insight on the portfolios and investment strategies that puts the math in perspective. Clear and concise without sacrificing detail, this book helps readers to:

Delineate the characteristics of different types of debt securities
Calculate implied forward and spot rates and discount factors
Work with rates of return, yield statistics, and interest rate swaps
Understand duration-based risk measures, and more
Memorizing formulas is one thing, but really learning how to mentally approach the math behind bonds is something else entirely. This approach places calculations in context, and enables easier transition from theory to application. For the bond professional seeking a quick math reference, Bond Math provides that and so much more.

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Produktdetails

• Wiley Finance Series
• Verlag: Wiley & Sons
• Artikelnr. des Verlages: 1W118866320
• 2. Aufl.
• Seitenzahl: 304
• Erscheinungstermin: 10. November 2014
• Englisch
• Abmessung: 236mm x 167mm x 29mm
• Gewicht: 502g
• ISBN-13: 9781118866320
• ISBN-10: 1118866320
• Artikelnr.: 41196138

Autorenporträt

DONALD J. SMITH is an associate professor of finance at the School of Management, Boston University. Smith specializes in teaching fixed-income markets and risk management courses and has published widely in academic and trade journals, including the Financial Analysts Journal; Journal of Finance; Journal of Money, Credit, and Banking; Journal of Fixed Income; Journal of Financial Engineering; and many others.

Inhaltsangabe

Preface to the Second Edition xi
Preface to the First Edition xiii
Chapter 1 Money Market Interest Rates 1
Interest Rates in Textbook Theory 2
Money Market Add-On Rates 3
Money Market Discount Rates 6
Two Cash Flows, Many Money Market Rates 9
A History Lesson on Money Market Certificates 12
Periodicity Conversions 13
Treasury Bill Auction Results 15
The Future: Hourly Interest Rates? 19
Conclusion 21
Chapter 2 Zero-Coupon Bonds 23
The Story of TIGRS, CATS, LIONS, and STRIPS 24
Yields to Maturity on Zero-Coupon Bonds 27
Horizon Yields and Holding-Period Rates of Return 30
Changes in Bond Prices and Yields 32
Credit Spreads and the Implied Probability of Default 34
Conclusion 38
Chapter 3 Prices and Yields on Coupon Bonds 39
Market Demand and Supply 40
Bond Prices and Yields to Maturity in a World of No Arbitrage 44
Some Other Yield Statistics 48
Horizon Yields 52
Some Uses of Yield-to-Maturity Statistics 53
Implied Probability of Default on Coupon Bonds 55
Bond Pricing between Coupon Dates 56
A Real Corporate Bond 59
Conclusion 63
Chapter 4 Bond Taxation 65
Basic Bond Taxation 66
Market Discount Bonds 68
A Real Market Discount Corporate Bond 70
Premium Bonds 74
Original Issue Discount Bonds 77
Municipal Bonds 79
Conclusion 82
Chapter 5 Yield Curves 83
An Intuitive Forward Curve 84
Classic Theories of the Term Structure of Interest Rates 87
Accurate Implied Forward Rates 91
Money Market Implied Forward Rates 93
Calculating and Using Implied Spot (Zero-Coupon) Rates 96
More Applications for the Implied Spot and Forward Curves 99
Discount Factors 105
Conclusion 109
Chapter 6 Duration and Convexity 111
Yield Duration and Convexity Relationships 112
Yield Duration 115
The Relationship between Yield Duration and Maturity 118
Yield Convexity 121
Bloomberg Yield Duration and Convexity 125
Curve Duration and Convexity 129
Conclusion 138
Chapter 7 Floaters and Linkers 139
Floating-Rate Notes in General 140
A Simple Floater Valuation Model 141
A Somewhat More Complex Floater Valuation Model 146
An Actual Floater 149
Inflation-Indexed Bonds: C-Linkers and P-Linkers 157
Linker Taxation 162
Linker Duration 165
Conclusion 171
Chapter 8 Interest Rate Swaps 173
Pricing an Interest Rate Swap 174
Interest Rate Forwards and Futures 178
Inferring the Forward Curve 181
Valuing an Interest Rate Swap 185
Interest Rate Swap Duration 188
Collateralized Swaps 192
Traditional LIBOR Discounting 193
OIS Discounting 196
The LIBOR Forward Curve for OIS Discounting 198
Conclusion 202
Chapter 9 Bond Portfolios 205
Bond Portfolio Statistics in Theory 205
Bond Portfolio Statistics in Practice 208
A Real Bond Portfolio 213
Thoughts on Bond Portfolio Statistics 223
Conclusion 225
Chapter 10 Bond Strategies 227
Acting on a Rate View 228
An Interest Rate Swap Overlay Strategy 233
Classic Immunization Theory 237
Immunization Implementation Issues 242
Liability-Driven Investing 245
Closing Thoughts: Target-Duration Bond Funds 246
Technical Appendix 249
Acronyms 267
Bibliographic Notes 269
About the Author 275
Acknowledgments 277
About the Companion Website 279
Index 281