Fixed Income Securities: Valuation, Risk, And Risk Management

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

Pietro Veronesi, University of Chicago, Booth School of Business

PART I: BASICS. 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. PART II: TERM STRUCTURE MODELS: TREES. 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. PART III: TERM STRUCTURE MODELS: CONTINUOUS TIME. 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.