Advanced Fixed Income Analysis by Moorad Choudhry

By Moorad Choudhry

Each new bankruptcy of the Second Edition covers a facet of the mounted source of revenue industry that has develop into suitable to traders yet isn't coated at a complicated point in current textbooks. this can be fabric that's pertinent to the funding judgements yet isn't freely on hand to these now not originating the goods. Professor Choudhry’s procedure is to put principles into contexts that allows you to retain them from turning into too theoretical. whereas the extent of mathematical sophistication is either excessive and really good, he features a short advent to the main mathematical concepts.  it is a e-book at the monetary markets, now not arithmetic, and he presents few derivations and less proofs. He attracts on either his own event in addition to his personal examine to collect topics of functional value to bond marketplace traders and analysts.

  • Presents practitioner-level theories and functions, by no means to be had in textbooks
  • Focuses on monetary markets, now not mathematics
  • Covers relative price making an investment, returns research, and probability estimation

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Extra resources for Advanced Fixed Income Analysis

Sample text

What this section has introduced is the concept of relative value for individual securities, and how the simple duration/yield analysis can be extended to assess other determinants of a bond's yield. We now look at the issues involved in putting on a spread trade. 3 Yield spread trades In the earlier section on futures trading, we introduced the concept of spread trading, which are not market directional trades but rather the expression of a viewpoint on the shape of a yield curve, or more specifically the spread between two particular points on the yield curve.

If using Macaulay duration the nominal values are calculated using D1 ˆ MV2 D2 ‡ MV3 D3 MV2 ‡ MV3 …2:4† where D and MV represent duration and market value for each respective stock. 5) is simply the present value of the cash flow payments C to be made by the bond in its remaining lifetime. 5) gives the continuously compounded yields to maturity; in practice users define a yield with compounding interval m, that is r ˆ …e rmn À 1†=m: …2:6† Treasuries and gilts compound on a semi-annual basis. 5) to give the yield for a set of cash flows which are purchased today at their present value.

Under `normal' circumstances the yield on a bond is higher the greater its maturity, this reflecting both the expectations hypothesis and liquidity preference theories. Intuitively we associate higher risk with longer-dated instruments, for which investors must be compensated in the form of higher yield. This higher risk reflects greater uncertainty with longer-dated bonds, both in terms of default and future inflation and interest rate levels. However, for a number of reasons the yield curve assumes an 1 This chapter was presented by the author as an internal paper in July 1997 when he was working at Hambros Bank Limited.

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