Pricing and Hedging Interest and Credit Risk Sensitive Instruments

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Elsevier, Oct 29, 2004 - Business & Economics - 288 pages
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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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Contents

CHAPTER 1 AN INTRODUCTION TO INTEREST AND CREDIT RISKY INSTRUMENTS AND THEIR MARKETS
1
CHAPTER 2 THE SOVEREIGN TERM STRUCTURE AND THE RISK STRUCTURE OF INTEREST RATES
18
CHAPTER 3 MEASURING THE EXISTING SOVEREIGN TERM STRUCTURE AND THE RISK STRUCTURE OF INTEREST RATES
46
THE BINOMIAL APPROACH
74
THE TERM STRUCTURE CONSISTENT APPROACH
92
CHAPTER 6 INTEREST AND CREDIT RISK MODELLING
122
THE TRADITIONAL APPROACH
159
CHAPTER 8 ACTIVE AND PASSIVE STRATEGIES
194
CHAPTER 9 ALTERNATIVE HEDGE RATIOS
227
CHAPTER 10 PRICING AND HEDGING NONFIXED INCOME SECURITIES
246
CHAPTER 11 CREDIT DERIVATIVES
274
CHAPTER 12 EMBEDDED OPTIONS
296
ANSWERS TO SELECTED PROBLEMS
324
REFERENCES
361
INDEX
367
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About the author (2004)

Dr. Frank S. Skinner is Director-Undergraduate Academic Programmes at the ISMA Centre for Education and Research in Security Markets, located at the University of Reading. He is an associate editor for the Journal of Bond Trading and Management and has published in leading academic and practitioner journals including the Journal of Banking and Finance, Journal of Fixed Income, and the Financial Analysts Journal. He has taught on the General Certificate Programme for ISMA for many years. He completed his PhD in Finance at the University of Toronto and has held full time appointments in Canada and at the Stern School of Business in the US. His research is focused on debt markets and instruments, and is in demand as a speaker and a consultant for numerous organisations.

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