CONTENTS
Chapter 1
Overview of the Types and Features of Fixed Income Securities
Frank J. Fabozzi, Michael G. Ferri, and Steven V. Mann
Residential Mortgage-Backed Securities
Commercial Mortgage-Backed Securities
Chapter 2
Risks Associated with Investing in Fixed Income Securities
Ravi F. Dattatreya, Frank J. Fabozzi, and Sergio M. Focardi
Inflation, or Purchasing-Power, Risk
Exchange-Rate, or Currency, Risk
Statistical Measures of Portfolio Risk: Standard Deviation, Skewness, and Kurtosis
Frank K. Reilly and David J. Wright
Building and Maintaining a Bond Index
Description of Alternative Bond Indexes
Chapter 4
Electronic Trading for Fixed Income Markets
The Rise of Electronic Trading
The Impact of Regulatory Requirements
Shift to a Fee-Based Broker-Dealer Revenue Model
Universe of Electronic Trading Platforms
Market Data and the Aggregation of Fixed Income ECNs
Retail-Fixed Income Market Participation
Retail Access to Individual Bonds
Chapter 5
Macro-Economic Dynamics and the Corporate Bond Market
Correlation and Capital Structure
Chapter 6
Bond Pricing, Yield Measures, and Total Return
Chapter 7
Measuring Interest-Rate Risk
Frank J. Fabozzi, Gerald W. Buetow, Jr., Robert R. Johnson, and Brian J. Henderson
Price Volatility Characteristics of Bonds
Modified Duration versus Effective Duration
The Importance of Yield Volatility
Chapter 8
The Structure of Interest Rates
The Term Structure of Interest Rates
PART TWO
GOVERNMENT SECURITIES AND CORPORATE DEBT OBLIGATIONS
Chapter 9
U.S. Treasury Securities
Michael J. Fleming and Frank J. Fabozzi
Zero-Coupon Treasury Securities
Chapter 10
Agency Debt Securities
Mark O. Cabana and Frank J. Fabozzi
Types of Agency Debt Securities
Nonactive Issuers and Recently Retired GSEs
Sylvan G. Feldstein, Frank J. Fabozzi, Alexander Grant, and David Ratner
Features of Municipal Securities
Types of Municipal Obligations
The Commercial Credit Rating of Municipal Bonds
Tax Provisions Affecting Municipals
Yield Relationships within the Municipal Bond Market
Regulation of the Municipal Securities Market
Frank J. Fabozzi, Steven V. Mann, and Adam B. Cohen
Alternative Mechanisms to Retire Debt before Maturity
Default Rates and Recovery Rates
Stephen J. Antczak, Frank J. Fabozzi, and Jung Lee
Chapter 14
Convertible Securities and Their Investment Application
Jonathan L. Horne and Chris P. Dialynas
Basic Characteristics of Convertible Securities and Key Terms
Overview of Convertible Bond Valuation and Risk Metrics
Primary Investors in Convertible Bonds
Motivations behind the Issuance of Convertible Securities
Chapter 15
Structured Notes and Credit-Linked Notes
John D. Finnerty and Rachael W. Park
Chapter 16
Private Money Market Instruments
Frank J. Fabozzi and Steven V. Mann
Large-Denomination Negotiable CDs
Chapter 17
Floating-Rate Securities
Frank J. Fabozzi and Steven V. Mann
General Features of Floaters and Major Product Types
Price Volatility Characteristics of Floaters
Chapter 18
Inflation-Linked Bonds
Valuation and Performance Dynamics
Chapter 19
International Bond Markets and Instruments
Overview and Scope of International Bond Markets
The Instruments: Domestic, Euro, and Foreign
Dollar-Denominated International Bonds
Non-Dollar-Denominated Debt International Bonds
International Fixed Income and Understanding Currency Risk
Chapter 20
Emerging Markets Debt
Emerging Markets Debt Performance History
Defaults, Exchanges, Restructurings, Workouts, and Litigation
Chapter 21
Fixed Income Exchange Traded Funds
Matthew Tucker and Stephen Laipply
Fixed Income ETF Characteristics and Mechanics
Trading Behavior: A Closer Look at Premiums and Discounts
Covered Bonds: From Europe to the Rest of the World
Cover Assets and Credit Enhancements
Asset/Liability Mismatches and Liquidity Risk
Covered Bonds and Securitization
Chapter 23
Nonconvertible Preferred Stock
PART THREE
SECURITIZED PRODUCTS
Chapter 24
An Overview of Mortgages and the Mortgage Market
Anand K. Bhattacharya and William S. Berliner
Generation of Mortgage Lending Rates
Component Risks of Mortgage Products
Chapter 25
Agency Mortgage-Backed Securities
Andrew Davidson, Anne Ching, and Eknath Belbase
History of Secondary Mortgage Market
Prepayment and Cash-Flow Behavior
Chapter 26
Agency Collateralized Mortgage Obligations
Chapter 27
The Effect of Agency CMO PAC Bond Features on Performance
The Term Structure of CMO Yields
Interaction of Collars and Collateral
Effect of Jump-Z and VADM Structures on PAC Bonds
Priority to Receive Excess Cash Flows
The Option Costs of PAC Features
How the Z Interacts with Other Bonds in the Structure
Structures with More Than One Z-Bond
Chapter 29
Support Bonds with Schedules in Agency CMO Deals
Summary of Average Life Volatilities
Chapter 30
Stripped Mortgage-Backed Securities
Cyrus Mohebbi, Gary Li, Todd White, and David Kwun 629
Chapter 31
Nonagency Residential Mortgage-Backed Securities
Dapeng Hu and Robert Goldstein
Relative Value and Risk Analysis
Chapter 32
Commercial Mortgage-Backed Securities
Wayne M. Fitzgerald II and Mark D. Paltrowitz
Chapter 33
Credit Card Asset-Backed Securities
Securitization of Credit Card Receivables
The Credit Card ABS Life Cycle
Credit and Investment Considerations
Chapter 34
Securities Backed by Auto Loans and Leases, Equipment Loans and Leases, and Student Loans
Chapter 35
Collateralized Loan Obligations
PART FOUR
TERM STRUCTURE OF INTEREST RATES
Chapter 36
Overview of Forward Rate Analysis
Computation of Par, Spot, and Forward Rates
Main Influences on the Yield-Curve Shape
Using Forward Rate Analysis in Yield-Curve Trades
Chapter 37
A Framework for Analyzing Yield-Curve Trades
Forward Rates and Their Determinants
Decomposing Expected Returns of Bond Positions
Chapter 38
Empirical Yield-Curve Dynamics and Yield-Curve Exposure
Fundamental Determinants of Yield-Curve Dynamics
Empirical Analysis of Yield-Curve Dynamics
Chapter 39
Term Structure Modeling with No-Arbitrage Interest Rate Models
Gerald W. Buetow, Jr., and Brian J. Henderson
Introduction to Models of the Short Rate
Binomial Interest Rate Lattices
Chapter 40
Valuation of Bonds with Embedded Options
Frank J. Fabozzi, Andrew Kalotay, and Michael Dorigan
Using the Lattice for Valuation
Fixed-Coupon Bonds with Embedded Options
Valuation of Two More Exotic Structures
Chapter 41
Valuation of Agency Mortgage-Backed Securities
Frank J. Fabozzi, Scott F. Richard, and Peter Ru
Chapter 42
Convertible Securities: Their Structures, Valuation, and Trading
Evolution in the Convertible Markets
Basic Characteristics of Convertible Securities
Approaches to Valuation of Convertibles
Exercising the Embedded Options
Chapter 43
Credit Analysis for Corporate Bonds
Martin Fridson, Frank J. Fabozzi, and Adam B. Cohen
Combining Financial and Nonfinancial Analysis
The Analysis of High-Yield Corporate Bonds
Chapter 44
The Credit Analysis of Municipal General Obligation and Revenue Bonds
Sylvan G. Feldstein, Alexander Grant, and David Ratner
The Need to Know Who Really Is the Issuer
On the Financial Advisor and Underwriter
General Credit Indicators and Economic Factors in the Credit Analysis
Information Sources for the Analyst
Chapter 45
Credit-Risk Modeling
Tim Backshall, Kay Giesecke, and Lisa Goldberg
Incomplete-Information Credit Models
PART SEVEN
MULTIFACTOR RISK MODELS
Chapter 46
Introduction to Multifactor Risk Models in Fixed Income and Their Applications
Anthony Lazanas, António Baldaque da Silva, Radu G
budean, and Arne D. Staal
Motivation and Structure Underlying Fixed Income Multifactor Risk Models
Chapter 47
Analyzing Risk from Multifactor Fixed Income Models
Anthony Lazanas, António Baldaque da Silva, Radu C. Gbudean, and Arne D. Staal
Approaches Used to Analyze Risk
Chapter 48
Hedging Interest-Rate Risk with Term-Structure Factor Models
Lionel Martellini, Philippe Priaulet, and Frank J. Fabozzi
Defining Interest-Rate Risk(s)
Relaxing the Assumption of a Small Shift
Relaxing the Assumption of a Parallel Shift
Comparative Analysis of Various Hedging Techniques
PART EIGHT
BOND PORTFOLIO MANAGEMENT
Chapter 49
Introduction to Bond Portfolio Management
Overview of Traditional Bond Management
Overview of the Core/Satellite Approach
Primary Bond Indexing Risk Factors
Chapter 50
Quantitative Management of Benchmarked Portfolios
Lev Dynkin, Jay Hyman, Vadim Konstantinovsky, and Bruce D. Phelps
Selection and Customization of Benchmarks
Diversification Issues in Benchmarks
Portfolio Analysis Relative to a Benchmark
Quantitative Approaches to Benchmark Replication
Replication with Cash Instruments: Stratified Sampling
Controlling Issuer-Specific Risk in the Portfolio
Quantitative Methods for Portfolio Optimization
Tools for Quantitative Portfolio Management
Chapter 51
Global Credit Bond Portfolio Management
Credit Relative-Value Analysis
Liquidity and Trading Analysis
Asset Allocation/Sector Rotation
Chapter 52
Elements of Managing a High-Yield Bond Portfolio
Mark R. Shenkman and Nicholas R. Sarchese
Bottom-Up–Credit/Security Analysis
Top-Down High-Yield Market Drivers and Macro Considerations
Chapter 53
International Bond Portfolio Management
Karthik Ramanathan, James M. Gerard, and Frank J. Fabozzi
Overview of International Bond Market Investing
Investment Objectives and Policy Statements
Developing a Portfolio Strategy
The Fundamental-Based Investment Approach
Chapter 54
Fixed Income Transition Management
Ananth Madhavan and Daniel Gallegos
Basics of Fixed Income Transitions
Transition Metrics and Objectives
Chapter 55
Managing the Spread Risk of Credit Portfolios Using the Duration Times Spread Measure
Arik Ben Dor, Lev Dynkin, and Jay Hyman
The Need for a New Measure of Credit Spread Exposure
Risk Projection: Predicting Spread Volatility
Hedging: Predicting Sensitivities to Market Spread Changes
Replication: Creating Index Tracking Portfolios
Expressing Macro Views in Active Portfolios
Portfolio Construction: Optimal Diversification of Issuer Risk
Modeling: Calibrating Credit-Risk Factors
Chapter 56
Investing in Distressed Structured Credit Securities
Economic (Credit) Risk versus Financial (Leverage) Risk
Analysis of Nonagency Mortgage-Backed Securities
Chapter 57
Hedge Fund Fixed Income Strategies
Ellen Rachlin, Chris P. Dialynas, and Vineer Bhansali
Index Arbitrage and Correlation Trading
Chapter 58
Financing Positions in the Bond Market
Frank J. Fabozzi and Steven V. Mann
Chapter 59
Introduction to Interest-Rate Futures and Options Contracts
Frank J. Fabozzi, Steven V. Mann, Mark Pitts, and Robin Grieves
Basic Characteristics of Derivative Contracts
Representative Exchange-Traded Interest-Rate Futures Contracts
Representative Exchange-Traded Futures Options Contracts
Chapter 60
Pricing Futures and Portfolio Applications
Frank J. Fabozzi, Mark Pitts, and Bruce M. Collins
Applications to Portfolio Management
Chapter 61
Controlling Interest-Rate Risk with Futures and Options
Frank J. Fabozzi, Shrikant Ramamurthy, and Mark Pitts
Controlling Interest-Rate Risk with Futures
Chapter 62
Interest-Rate Swaps and Swaptions
Frank J. Fabozzi, Steven V. Mann, and Moorad Choudhry
Description of an Interest-Rate Swap
Terminology, Conventions, and Market Quotes
Primary Determinants of Swap Spreads
Nongeneric Interest-Rate Swaps
Chapter 63
The Valuation of Interest-Rate Swaps and Swaptions
Gerald W. Buetow and Brian J. Henderson
Swap Valuation Using the Lattice Approach
Valuing Basis Swaps and Non-LIBOR-Based Swaps
Factors Affecting Swap Valuation
Chapter 64
The Basics of Interest-Rate Options
William J. Gartland and Nicholas C. Letica
Options Strategies—Reorganizing the Profit/Loss Graph
Practical Portfolio Strategies
Chapter 65
Interest-Rate Caps and Floors
George L. Albota and Radu S. Tunaru
Potential Applications of Caps and Floors
Insights on Trading Caps and Floors
Caps and Floors versus Swaptions Wedge
Evolution of the Credit Derivatives Market
Chapter 67
Credit Derivative Valuation and Risk
Generic Challenges Facing Hedgers
PART TEN
PERFORMANCE EVALUATION AND RETURN ATTRIBUTION ANALYSIS
Chapter 69
Principles of Performance Attribution
Anthony Lazanas, António Baldaque da Silva, Chris Sturhahn, Eric P. Wilson, and Pam Zhong
Principles of Performance Attribution
Mathematics of Performance Attribution
Applications of Performance Attribution
Chapter 70
Performance Attribution for Portfolios of Fixed Income Securities
Anthony Lazanas, António Baldaque da Silva, Chris Sturhahn, Eric P. Wilson, and Pam Zhong
Selecting an Appropriate Attribution Model
Chapter 71
Advanced Topics in Performance Attribution
Anthony Lazanas, António Baldaque da Silva, Chris Sturhahn, Eric P. Wilson, and Pam Zhong
APPENDIX
Methodology for Calculating Currency Exposures in Bond Portfolios and Indexes
Main Formula for Bond Portfolios
Main Formula for Citigroup Indexes