Fixed income securities : tools for today's markets / Bruce Tuckman.

Tuckman, Bruce.

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Part One    THE RELATIVE PRICING OF TRADITIONAL
          FIXED INCOME SECURITIES       1

Chapter 1   Bond Prices and Discount Factors3

          The Time Value of Money3
          Treasury Bond Quotations4
          Discount Factors5
           Arbitrage and the Law of One Price7
           Bid-Ask Spreads and the Law of One Price9
          Treasury STRIPS 10
            Questions 13
           Appendix IA Calculating the Replicating Portfolio
                    and Deriving Arbitrage-Free Price Bounds 14

Chapter 2    Bond Prices and Interest Rates:
               Spot and Forward  17
               Semiannual Compounding 17
               Spot Rates 19
               Forward Rates 22
               Application: Short-Term vs.  Long-Term Bond Prices 26
               Application: Short-Term vs.  Long-Term Bond Returns 27
               Questions 30
               Appendix 2A On the Relations between Spot Rates,
               Forward Rates, and the Slope of the Term Structure      3 1

Chapter 3         Yield-to-Maturity         33
               Definition and Comments        33
               The Coupon Effect       36
               Yield-to-Maturity and Realized Return       39
                Questions      40

Chapter 4         Real Data Issues         41
               Coupons in the Midst of Semiannual Intervals 42
               An Introduction to Smoothing Techniques        45
               Examples of Smoothing Techniques         48
               Questions 55
               Appendix 4A Rate Calculations When Cash Flows
              Occur in the Midst of Semiannual Intervals
              and Continuous Compounding 56
              Appendix 4B Least Squares and Least Absolute
              Deviations 58
              Appendix 4C Piecewise Cubics          60

Part Two          THE RELATIVE PRICING OF INTEREST
                                             RATE CONTINGENT CLAIMS                      63
               Introduction     63
Chapter 5         An Introduction to Arbitrage-Free Pricing
         	of Derivatives	67
         	Questions	72
Chapter 6	Risk-Neutral	Pricing	73
    	        Questions	76
Chapter 7Arbitrage-Free Pricing in a Realistic Setting           77
          Questions 86
Chapter 8         The Art of Term-Structure Modeling              89
                  The Ho-Lee Model        90
                  The Original Salomon Brothers Model        96
                  The Black-Derman-Toy Model         102
             	The Black-Karasinski Mode       106
          	Questions     109
Chapter 9	Equilibrium vs. Arbitrage-Free Models	ill

Part Three	MEASURES OF PRICE SENSITIVITY	115
                Introduction    115
Chapter 10        The Price-Rate Function and its Derivative            117
	          Questions     121
Chapter 11	Measures of Price Sensitivity	123
        	The Price Value of a Basis Point	123
        	Duration	126
        	Convexity	129
        	The Cost of	Convexity	134
        	Questions	137
                 Appendix I IA The Duration and Convexity
                 of a Portfolio    t37
Chapter 12        Macaulay and Modified Duration              139
                  Derivations and Definitions     139
                  An Example       143
                 Duration: Analysis and Intuition 146
                 Convexity: Analysis and Intuition 150
                 Questions 153
                  Appendix 12A Special Cases of Duration         153

Chapter 13	Key Rate Durations	157
         	Multi-Factor Models and	Duration	t57
         	Key Rate Durations	159
         	Questions	166
Part Four	SELECTED	APPLICATIONS	169

Chapter 14        Forward and Futures Contracts             171
               The Pricing of Forward Contracts      171
               Identifying the Underlying Security     176
               Marking-to-Market and the
               Pricing of Futures Contracts    177
               Term-Structure Models and Futures Prices      180
               Delivery Options and the Cheapest to Deliver     182
         	Conclusion      188
         	Questions     189

Chapter 15	Floaters and Inverse Floaters	191
        	'Me Price and Duration of Floaters	191
                 A Primer on Inverse Floaters    193
        	Questions	194
Chapter 16	Interest	Rate Swaps	197
              	Description	197
          	Price and Price Sensitivity	198
         	Credit Risk and Swaps	200
         	LIBOR as the Floating Rate	Index	201
               Zero Sum Games and the Swaps Market        203
               Questions    206

Chapter 17         The Options Embedded in Corporate Bonds               209
                 The Call Provision   209
                 Pricing Callable Bonds with a Term-Structure Model 213
                 A Graphical Analysis of Callable Bonds 219
                 Sinking Fund Basics 224
	        The Partial Call		229
	        Conclusion	234
	        Questions	234

Chapter 18          Mortgage-Backed Securities         237

                  Basic Mortgage Math     237
                  The Prepayment Option in Theory 241
                  T'he Prepayment Option in Practice 246
                  Mortgage Pricing Models 248
                  Price-Yield Curves of Mortgage Pass-Throughs
                  and Selected Derivatives     254
                  Questions  260
                   References    261

                    Index  263