Market Risk Analysis Volume III: Pricing, Hedging and Trading Financial Instruments

Contents

List of Figures

List of Tables

List of Examples

Foreword

Preface to Volume III

III.1 Bonds and Swaps

III.1.1 Introduction

III.1.2 Interest Rates

III.1.2.1 Continuously Compounded Spot and Forward Rates

III.1.2.2 Discretely Compounded Spot Rates

III.1.2.3 Translation between Discrete Rates and Continuous Rates

III.1.2.4 Spot and Forward Rates with Discrete Compounding

III.1.2.5 LIBOR

III.1.3 Categorization of Bonds

III.1.3.1 Categorization by Issuer

III.1.3.2 Categorization by Coupon and Maturity

III.1.4 Characteristics of Bonds and Interest Rates

III.1.4.1 Present Value, Price and Yield

III.1.4.2 Relationship between Price and Yield

III.1.4.3 Yield Curves

III.1.4.4 Behaviour of Market Interest Rates

III.1.4.5 Characteristics of Spot and Forward Term Structures

III.1.5 Duration and Convexity

III.1.5.1 Macaulay Duration

III.1.5.2 Modified Duration

III.1.5.3 Convexity

III.1.5.4 Duration and Convexity of a Bond Portfolio

III.1.5.5 Duration–Convexity Approximations to Bond Price Change

III.1.5.6 Immunizing Bond Portfolios

III.1.6 Bonds with Semi-Annual and Floating Coupons

III.1.6.1 Semi-Annual and Quarterly Coupons

III.1.6.2 Floating Rate Notes

III.1.6.3 Other Floaters

III.1.7 Forward Rate Agreements and Interest Rate Swaps

III.1.7.1 Forward Rate Agreements

III.1.7.2 Interest Rate Swaps

III.1.7.3 Cash Flows on Vanilla Swaps

III.1.7.4 Cross-Currency Swaps

III.1.7.5 Other Swaps

III.1.8 Present Value of a Basis Point

III.1.8.1 PV01 and Value Duration

III.1.8.2 Approximations ...