Pricing and Hedging Interest and Credit Risk Sensitive Instruments
This book is tightly focused on the pricing and hedging of fixed income securities and their derivatives. It is targeted at those who are interested in trading these instruments in an investment bank, but is also useful for those responsible for monitoring compliance of the traders such as regulators, back office staff, middle and senior lever managers.
To broaden its appeal, this book lowers the barriers to learning by keeping math to a minimum and by illustrating concepts through detailed numerical examples using Excel workbooks/spreadsheets on a CD with the book. On the accompanying CD with the book, three interest rate models are illustrated: Ho and Lee, constant volatility and Black Derman and Toy, along with two evolutionary models, Vasicek and CIR and two credit risk models, Jarrow and Turnbull and Duffie and Singleton. These are implemented via spreadsheets on the CD.
* Starts at an introductory level and then develops advanced topics
* Provides plenty of numerical examples rather than mathematical equations to aid full understanding of the strengths and weaknesses of all interest rate derivative models
* Can be used for self-study - a complete book on the topic, which includes examples with answers
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CHAPTER 3 MEASURING THE EXISTING SOVEREIGN TERM STRUCTURE AND THE RISK STRUCTURE OF INTEREST RATES
THE BINOMIAL APPROACH
THE TERM STRUCTURE CONSISTENT APPROACH
CHAPTER 6 INTEREST AND CREDIT RISK MODELLING
THE TRADITIONAL APPROACH
CHAPTER 8 ACTIVE AND PASSIVE STRATEGIES
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amount arbitrage asset backward induction basis points binomial bond market bond price bond’s calculate calibrated call option callable bond cash flows cell convexity coupon payment coupon rate coupon yield curve credit default swap credit derivatives credit protection credit risk credit spread decrease discount factor discount factor tree duration gap estimate example face value find the value forward rate futures contract hedge portfolio hedge ratio hedging instrument implied interest rate process interest rate risk interest rate tree inverse floater investment investors Jarrow and Turnbull Macaulay duration mean reversion modified duration one-year payoff period price tree probability of survival put option PVBP rate of interest reinvestment replicating portfolio reset date security price semi-annual coupon pay short rate sinking fund sovereign bond sovereign term structure sovereign yield curve spreadsheet stochastic straight bond strategy structure of interest swap premium Table term structure consistent trade underlying Vasicek zero coupon bond zero coupon yield
Page 20 - THE TERM STRUCTURE OF INTEREST RATES The term structure of interest rates is the relationship between interest rates and term to maturity.