Fixed Income Securities, 4th Edition

Preface

The goal of this book is to convey the institutional, conceptual, and quantitative frameworks used by sophisticated fixed income market practitioners. The overview chapter is a broad survey of markets, market participants, and some intermediate‐term trends (monetary policy in a regime of abundant reserves; negative rates in Europe and Japan; and the changing nature of liquidity). Chapters 1 through 6 present the basic language and toolbox of the fixed income cosmos: arbitrage pricing; rates and spreads; DV01, duration, and convexity; and multi‐factor and empirical hedging. Chapters 7 through 9 explain how term structure models are used for better understanding the shape of the term structure of interest rates; for pricing fixed income derivatives; and for relative value and even macro‐style trading. Chapters 10 through 16 then delve into the details of several large and important markets: repurchase agreements or repo; note and bond futures; short‐term rates and their derivatives; interest rate swaps; corporate bonds and credit default swaps; mortgages and mortgage‐backed securities; and fixed income options.

While fixed income is an inherently quantitative subject, this book takes a very applied approach. All ideas are presented through examples, using market prices, events, or meaningful applications whenever possible. (A list of particularly extensive applications is given on the next page.) There is a lot of emphasis on orders of magnitude (e.g., “About how big ...