Fixed Income Trading and Risk Management "The Complete Guide"

por During, Alexander
Fixed Income Trading and Risk Management "The Complete Guide"
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ISBN: 978-1-119-75633-0
Editorial: Wiley & Sons Ltd.
Fecha de la edición: 2021
idioma: Ingles
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Nº Pág.: 464

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Resumen del libro

Reseña: A unique, authoritative, and comprehensive treatment of fixed income markets Fixed Income Trading and Risk Management: The Complete Guide delivers a comprehensive and innovative exposition of fixed income markets. Written by European Central Bank portfolio manager Alexander During, this book takes a practical view of how several different national fixed income markets operate in detail. The book presents common theoretical models but adds a lot of information on the actually observed behavior of real markets. Youll benefit from the books: Fulsome overview of money, credit, and monetary policyDescription of cash instruments, inflation-linked debt, and credit claimsAnalysis of derivative instruments, standard trading strategies, and data analysisIn-depth focus on risk management in fixed income marketsPerfect for new and junior staff in financial institutions working in sales and trading, risk management, back office operations, and portfolio management positions, Fixed Income Trading and Risk Management also belongs on the bookshelves of research analysts and postgraduate students in finance, economics, or MBA programs.
indice: I Preliminaries 15 1 Introduction 17 2 Money, credit and banking 25 2.1 Abstract properties of money 25 2.2 Early forms of money 27 2.2.1 Paper money and bank notes 31 2.3 Fiat money 32 2.3.1 Fiat money and trade 33 3 Banks 35 3.1 Banks and bank money creation 35 3.2 Categories of banks 36 4 Bank money creation 39 4.1 Single-bank introduction 39 4.2 Extension to multiple banks 42 4.3 Transfer settlement in central bank money 46 4.4 Trade and non-bank credit 50 4.4.1 Non-cash trading instruments 51 4.4.2 Discounting 52 4.4.3 Delineating payment instruments from money 52 4.5 Digital token monies and cryptocurrencies 53 4.6 The money multiplier 54 5 The role of central banks 57 5.1 Introduction 57 5.2 Monetary financing 63 6 Monetary policy 65 6.1 Objectives of monetary policy 65 6.2 Monetary policy under inflation targeting 68 6.3 Central bank operational frameworks 72 6.3.1 Symmetric interest rate corridors 74 6.3.2 Asymmetric lending corridors 76 7 Operational frameworks 77 7.1 Control of the money supply 77 7.2 Liquidity provision: Rediscounting, outright purchases and Lombard lending 78 7.3 Liquidity absorption: Asset sales and reverse repos 79 7.4 The impact of FX operations 80 8 Interaction between frameworks and policy 83 8.1 Volatility 83 8.2 Collateral 84 9 Non-standard monetary policy 87 9.1 Quantitative easing 87 9.1.1 The monetary effect of large-scale asset purchases 92 9.1.2 Market liquidity and central bank asset purchases 93 9.1.3 Helicopter money 95 9.1.4 Choice of methods and assets 96 9.2 Practical experience 99 9.2.1 QE, money multipliers and FX 99 9.2.2 Bank of Japan 2013 QE experience 104 9.2.3 Lessons from the initial BoJ quantitative easing 106 9.3 Negative interest rates 108 9.4 The specific situation of the ECB 109 II Cash instruments 113 10 Contract and instrument types 115 10.1 Securities and bilateral contracts 115 10.2 Security identifiers 118 10.2.1 ISIN codes 118 10.2.2 CUSIP codes 120 11 Trading and settlement 123 11.1 Trading 123 11.1.1 Trading and price formation 123 11.1.2 Trading venues 124 11.1.3 The OTC trade lifecycle 126 11.1.4 The exchange trade cycle 137 11.1.5 Trading in competition versus single dealer inquiries and orders 137 11.2 Settlement 139 11.2.1 Settlement mechanisms 139 11.2.2 Settlement conventions 140 12 Central clearing 143 12.1 Direct clearing 143 12.2 Indirect clearing 149 12.2.1 Agency clearing 149 12.2.2 Principal clearing 150 12.2.3 Hybrid clearing models 150 12.3 Contract value adjustments (xVA) 151 12.3.1 Credit Value Adjustment 152 12.3.2 Funding Value Adjustment 152 12.3.3 Debit Value Adjustment 153 13 The money market 155 13.1 Money market instruments 155 13.2 Discount factors 157 13.3 Daycount conventions 158 13.4 Money market interest rates 160 13.5 Compounding 161 13.6 LIBOR, Euribor, and friends 162 13.7 Overnight benchmarks 164 13.8 Benchmark reform 165 13.9 Money market futures and futures trading 167 13.9.1 Money market futures 167 13.9.2 Identification of futures contracts 168 13.9.3 Futures trading basics 169 13.9.4 Convexity adjustment 170 14 The repo market 173 14.1 The repurchase market 173 14.2 Haircut 175 14.3 Variations of repurchase transactions 176 14.4 Rehypothecation 178 15 Spot and forward rates 179 15.1 Forward rates 179 15.2 No-arbitrage calculations 179 15.3 Official rates versus term rates 181 15.3.1 The turn premium 182 15.3.2 Matching policy expectations to market rates 183 16 Bond market 187 16.1 Introduction 187 16.2 Cashflow types 188 16.2.1 Bullet bonds 188 16.2.2 Zero coupon bonds, perpetuals and annuities 190 16.3 Issuer types 194 16.3.1 Joint issuance 196 16.3.2 Supranationals 199 16.4 Governing law and contractual clauses 200 16.5 Bond markets 203 16.5.1 The primary market 206 16.5.2 The secondary market I: (interdealer market) 211 16.5.3 The secondary market II: (customer-facing market) 212 16.6 Accrued interest 212 16.7 Yield 214 16.7.1 Running yield 214 16.7.2 Simple yield 214 16.7.3 Compound yield 215 16.7.4 Bond-equivalent yield 216 16.8 Interest rate risk 217 16.9 Convexity 219 16.10Bond value decomposition 220 16.11Carry 223 17 Floating-rate notes 225 17.1 Coupon reset mechanics 226 17.2 Libor and OIS-linked notes 227 17.3 Discount margin 229 17.4 CMS and CMT floaters 231 18 Asset markets and liquidity 233 18.1 Concepts 233 18.2 Liquidity measurement 237 18.2.1 Taxonomy of liquidity measures 239 18.3 Examples 241 18.4 Liquidity premium 244 18.5 Liquidity and volatility 246 19 Curves and curve models 249 19.1 Models 250 19.2 Yield curve representation and interpretations 251 19.2.1 Discount factors versus par curves 251 19.3 Market-based curve representations 254 19.3.1 Bootstrapping 254 19.3.2 Reverse bootstrapping 256 19.4 Parametric curve models 257 19.4.1 The Nelson-Siegel and Nelson-Siegel-Svensson spline 258 19.4.2 Polynomial splines 259 19.4.3 The exponential spline 261 19.4.4 The Vasicek spline 261 19.4.5 Composite models 264 19.5 Fitting curve models 265 20 Curve analyis 269 20.1 Expectations 270 20.2 Convexity bias 274 20.3 Term risk premium 276 20.4 Preferred habitat 278 20.4.1 Asset-liability matching 278 20.4.2 Regulatory constraints 279 20.4.3 Passive investing 280 20.4.4 Central bank reserve portfolios 281 20.4.5 Market technicals 281 21 Carry and roll-down 283 22 Curve spreads 287 22.1 Z-spread 287 22.2 Par spread 288 22.3 Swap spreads 289 22.3.1 Asset swap spreads 289 22.3.2 I-spreads 291 22.3.3 The TED spread 292 III Inflation-linked debt 293 23 Inflation-indexed bonds 295 23.1 Introduction 295 23.1.1 Cashflows of inflation-linked bonds 298 23.1.2 Quotation of index-linked bonds 300 23.2 Rebalancing, rebasing and revision of CPI indices 301 23.3 Inflation seasonality 304 23.4 Price formation in inflation-linked markets 308 23.5 Return measures of inflation-linked bonds 310 23.6 Breakeven inflation 312 23.7 Carry on inflation-indexed bonds 315 23.8 Comprehensive inflation modelling 316 23.9 Inflation models and expectations 321 IV Defaultable claims 325 24 Credit risk 327 24.1 Default, insolvency, and bankruptcy 327 24.2 Seniority and subordination 328 24.2.1 Time subordination and acceleration 328 24.2.2 Contractual subordination 329 24.2.3 Statutory subordination 330 24.2.4 Joint liabilities and credit support 331 24.2.5 Sovereign debt 331 24.3 The default process 332 24.3.1 Collective action clauses 334 24.3.2 Debt exchanges and consent solicitations 335 24.3.3 Managed defaults 336 24.3.4 Wind-downs 337 24.4 Credit ratings 337 24.4.1 Rating migration 340 24.4.2 Alternative rating approaches 345 25 Covered bonds 347 25.1 Statutory covered bonds 353 25.2 Danish covered bonds 356 25.3 Structured covered bonds 357 25.4 Covered bond credit risk analysis 359 26 Asset-backed securities 363 26.1 The ABS issuance process 364 26.2 Default risk of ABS 365 26.3 Maturity of ABS 367 27 Residential mortgage-backed securities 369 27.1 Residential mortgage prepayments 370 27.2 Prepayment modelling 373 V Derivatives 381 28 Bond futures 383 28.1 Introduction 383 28.2 Futures trading patterns 386 28.2.1 Open interest and trading volume 386 28.2.2 CFTC data for US futures contracts 390 28.3 Valuation of physically delivered bond futures 394 28.3.1 Basis and implied repo rate 394 28.3.2 Conversion factors and the notional coupon 396 28.3.3 The cash-and-carry arbitrage 399 28.3.4 The quality option 400 28.3.5 Hedging with futures 401 28.4 Futures rolls 407 28.4.1 Roll ratios 410 28.4.2 Advanced futures delivery models 413 28.5 Delivery windows 413 28.6 Interaction between futures and bonds 415 28.7 Futures squeezes 416 28.8 Cash-settled futures 419 28.8.1 Exchange-for-physical transactions 420 28.9 New bond issues 421 29 Swaps 423 29.1 Introduction 423 29.2 Plain vanilla swaps 426 29.3 Trade compression and re-couponing 428 VI Standard trading strategies 431 30 Trading principles 433 30.1 Definitions 433 30.2 Trade identification 436 30.3 Trade portfolios 437 31 Curve trading 439 31.1 Simple curve trades 443 31.1.1 Outright trades 443 31.1.2 Steepeners and flatteners 443 31.1.3 Butterflies 446 31.1.4 Condors 447 31.2 Intrinsic curve movements 448 31.2.1 Alternative specifications 454 32 Bond trading 457 32.1 Bond relative value 457 32.2 Relative value strategies 459 32.2.1 Spread widener/tightener 459 32.2.2 Basis trade 460 32.2.3 Bond spread 461 32.2.4 Bond spread with curve hedge 461 32.2.5 Alternative strategies 462 33 Principal Component Analysis 465 33.1 PCA as generalised regression 468 33.2 Measuring data complexity with PCA 469 34 Bond index mechanics 473 34.1 Bond index principles 473 34.2 Index rebalancing 475 35 Portfolio risk management 477 35.1 Risk-neutral portfolios 477 35.2 Index tracking 480 35.2.1 Friction effects 484 36 Hedging 487 36.1 Introduction 487 36.2 Duration-neutral hedges 488 36.3 Regression hedges 489 36.4 Yield curve model hedges 490 37 Mean-variance optimisation 495 38 Portfolio rebalancing 505 38.1 Passive and semi-passive strategies 506 38.1.1 No reallocation 506 38.1.2 Passive management 506 38.1.3 Index replication 507 38.1.4 Constant asset allocation 508 38.1.5 Trend following 509 38.1.6 Mean reversion 509 38.2 Numerical examples 510 VIII References 513 39 Selected global bond markets 515 39.1 Euro area 515 39.1.1 Austria 517 39.1.2 Belgium 518 39.1.3 Finland 519 39.1.4 France 519 39.1.5 Germany 522 39.1.6 Greece 525 39.1.7 Ireland 526 39.1.8 Italy 527 39.1.9 The Netherlands 529 39.1.10 Portugal 530 39.1.11 Spain 531 39.2 Iceland 532 39.3 Japan 533 39.4 Sweden 536 39.5 United Kingdom 537 39.6 United States of America 539

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