An Introduction to Bond Markets

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An Introduction to Bond Markets

Format:  Paperback,

445 pages

Publisher: John Wiley & Sons Inc

Publish Date: Oct 2010

ISBN-13: 9780470687246

ISBN-10: 047068724X

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The following content was provided by the publisher.
The bond markets are a vital part of the world economy. The fourth edition of Professor Moorad Choudhry's benchmark reference text "An Introduction to Bond Markets" brings readers up to date with latest developments and market practice, including the impact of the financial crisis and issues of relevance for investors. This book offers a detailed yet accessible look at bond instruments, and is aimed specifically at newcomers to the market or those unfamiliar with modern fixed income products. The author capitalises on his wealth of experience in the fixed income markets to present this concise yet in-depth coverage of bonds and associated derivatives.

Topics covered include: Bond pricing and yieldDuration and convexityEurobonds and convertible bondsStructured finance securitiesInterest-rate derivativesCredit derivativesRelative value trading

Related topics such as the money markets and principles of risk management are also introduced as necessary background for students and practitioners. The book is essential reading for all those who require an introduction to the financial markets.

Specifications

Author:
Publisher: John Wiley & Sons Inc
Publish Date: Oct 2010
ISBN-13: 9780470687246
ISBN-10: 047068724X
Format: Paperback
Number of Pages: 445
Shipping Weight (in pounds): 1.5
Product in Inches (L x W x H): 6.0 x 1.1 x 8.9
Walmart No.: 9780470687246

Chapter outline

Foreword
Preface
Preface to the First Edition
About the author
Introduction to Bonds
Description
Outline of market participants
Bond analysis
Financial arithmetic: the time value of money
Present value and discounting
Discount factors and boot-strapping the discount function
Bond pricing and yield: the traditional approach
Bond pricing
Bond yield
Accrued interest
Clean and dirty bond prices
Day-count conventions
Illustrating bond yield using Excel spreadsheets
Bibliography
The Yield Curve, Spot and Forward Yields
The yield curve
Yield-to-maturity yield curve
The par yield curve
The zero-coupon (or spot) yield curve
The forward yield curve
Theories of the yield curve
Spot rates
Discount factors and the discount function
The boot-strapping method: deriving the theoretical zero-coupon (spot) rate curve
Mathematical relationship
Implied forward rates
Understanding forward rates
The term structure of interest rates
Bibliography
Bond Instruments and Interest-Rate Risk
Duration, modified duration and convexity
Duration
Properties of Macaulay duration
Modified duration
Convexity
Bibliography
Floating-Rate Notes and Other Bond Instruments
Floating-rate notes
Synthetic convertible note
Description
Investor benefits
Interest differential notes
Example of IDN
Benefits to investors
Convertible quanto note
Example of Japanese equity note
Bibliography
The Money Markets
Introduction
Securities quoted on a yield basis
Money market deposits
Certificates of deposit
CD yields
Securities quoted on a discount basis
Treasury bills
Banker's acceptances
Eligible banker's acceptance
Commercial paper
Commercial paper programmes
Commercial paper yields
Asset-backed commercial paper
Repo
Definition
The classic repo
Examples of classic repo
The sell/buy-back
Examples of sell/buy-back
Repo collateral
Legal treatment
Margin
Variation margin
A Currencies using money market year base of 365 days
The Eurobond Market
Eurobonds
Foreign bonds
Eurobond instruments
Conventional bonds
Floating rate notes
Zero-coupon bonds
Convertible bonds
The issue process: market participants
The borrowing parties
The underwriting lead manager
The co-lead manager
Investors
Fees, expenses and pricing
Fees
Expenses
Pricing
Issuing the bond
The grey market
Alternative issue procedures
Covenants
Trust services
Depositary
Paying agent
Registrar
Trustee
Custodian
Form of the bond
Temporary global form
Permanent global bond
Definitive form
Registered bonds
Fiscal agent
Listing agent
Clearing systems
Market associations
International Capital Market Association
Bloomberg screens
Secondary market
Settlement
Bibliography
Convertible Bonds, Mtns and Warrants
Description
Analysis
Value and premium issues
Zero-coupon convertibles
Warrants
Medium-term notes
MTN programme
Shelf registration
Credit rating
Secondary market
Issuers and investors
MTNs and corporate bonds
Credit Ratings
Credit ratings
Purpose of credit ratings
Formal credit ratings
Credit rating agencies and the 2007-2008 financial market crash
Inflation-Linked Bonds
Basic concepts
Choice of index
Indexation lag
Coupon frequency
Type of indexation
Index-linked bond cash flows and yields
TIPS cash flow calculations
TIPS price and yield calculations
Assessing yields on index-linked bonds
Which to hold: indexed or conventional bonds?
Inflation-indexed derivatives
Market instruments
Applications
Bibliography
An Introduction to Asset-Backed Securities
The concept of securitisation
Reasons for undertaking securitisation
Benefits of securitisation to investors
The process of securitisation
Securitisation process
SPV structures
Credit enhancement
Impact on balance sheet
Credit rating
Redemption mechanism
Average life
Illustrating the process of securitisation
Securitisation post-credit crunch
Bloomberg screens
Bibliography
Introduction to Derivative Instruments
Interest-rate swaps
Characteristics of IR swaps
Swap spreads and the swap yield curve
Swap duration
Summary of IR swap
Non-standard swaps
Using swaps
Cancelling a swap
Zero-coupon swap pricing
Hedging using bonds and swaps
Swaptions
Cross-currency swaps
Bloomberg screens
Futures contracts
Description
Bond futures contracts
Futures pricing
Arbitrage-free futures pricing
Hedging using futures
The hedge ratio
Interest-rate options
Introduction
Definition
Option terminology
Option premium
Pricing options
Behaviour of option prices
Using options in bond markets
Hedging using bond options
Exotic options
Bibliography
Introduction to Credit Derivatives
Introduction
Why use credit derivatives?
Classification of credit derivative instruments
Definition of a credit event
Asset swaps
Credit default swaps
Impact of the 2007-2008 credit crunch: new CDS contracts and the CDS 'Big Bang'
Credit-linked notes
Total return swaps
Synthetic repo
Reduction in credit risk
Capital structure arbitrage
The TRS as a funding instrument
Credit options
The CDS iTraxx index
General applications of credit derivatives
Use of credit derivatives by portfolio managers
The credit default swap basis
A negative basis
The basis as market indicator
Bibliography
Approaches to Government Bond Trading and Yield Analysis
Introduction
The determinants of yield
Spread trade risk weighting
Identifying yield spread trades
Coupon spreads
Butterfly trades
Basic concepts
Putting on the trade
Yield gain
Convexity gain
Bloomberg screens
Bond spreads and relative value
Bond spreads
Summary of a fund manager's approach to value creation
Bibliography
Risk Management and Value-At-Risk
Characterising risk
Risk management
The risk management function
Interest-rate risk
Value-at-Risk
Definition
Calculation methods
Validity of the variance-covariance (correlation) VaR estimate
Assessment of VaR tool
VaR methodology for credit risk
Modelling VaR for credit risk
Time horizon
Applications of credit VaR
Bibliography
Glossary
List of abbreviations
Index

Book description

The bond markets are a vital part of the world economy. The fourth edition of Professor Moorad Choudhry's benchmark reference text An Introduction to Bond Markets brings readers up to date with latest developments and market practice, including the impact of the financial crisis and issues of relevance for investors. This book offers a detailed yet accessible look at bond instruments, and is aimed specifically at newcomers to the market or those unfamiliar with modern fixed income products.

The author capitalises on his wealth of experience in the fixed income markets to present this concise yet in-depth coverage of bonds and associated derivatives.

Topics covered include:

  • Bond pricing and yield
  • Duration and convexity
  • Eurobonds and convertible bonds
  • Structured finance securities
  • Interest-rate derivatives
  • Credit derivatives
  • Relative value trading

Related topics such as the money markets and principles of risk management are also introduced as necessary background for students and practitioners. The book is essential reading for all those who require an introduction to the financial markets.

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