Bond Evaluation, Selection, and Management

Transcription

1 Bond Evaluation, Selection, and Management Second Edition R. STAFFORD JOHNSON WILEY John Wiley &c Sons, Inc.

2 Contents Preface Acknowledgments xvii xxi PART OWE Bond Evaluation 1 CHAPTER 1 Overview of the Financial System S 1.1 Real and Financial Assets Types of Debt Claims Financial Market Types of Financial Markets Regulations Efficient Financial Markets Characteristics of Assets Conclusion CHAPTER 2 Bond Valoe and Return Introduction Bond Valuation The Yield to Maturity and Other Rates of Return Measures Rates on Zero-Coupon Bonds Total Return Spot Rates and Equilibrium Prices Geometric Mean Conclusion vii

3 Vjii CONTENTS CHAPTER 3 The Level and Structure of Interest Rates Introduction Level of Interest Rates The Structure of Interest Rates Conclusion CHAPTER 4 The Term Structure of Interest Rates Introduction Market Segmentation Theory Preferred Habitat Theory Pure Expectations Theory Liquidity Premium Theory Summary of Term Structure Theories Constructing the Benchmark Yield Curve Conclusion, CHAPTER 5 Bond Risk Introduction Default Risk Call Risk Market Risk Duration and Convexity Conclusion PARTTOO- Debt Markets 191 CHAPTER 6 Corporate Debt Securities Introduction Corporate Bonds 194

4 Contents ix Bankruptcy The Markets for Corporate Bonds Medium-Term Commercial Paper Conclusion CHAPTER 7 Treasury and Agency Securities 7.1 Introduction 7.2 Treasury Instruments 7.3 Repurchase Agreements 7.4 Federal Agency Securities 7.5 Conclusion CHAPTER 8 Municipal Securities 8.1 Introduction 8.2 Municipal Financing 8.3 Tax-Exempt Status 8.4 Types of Municipals 8.5 Special Features of Municipals 8.6 Credit Risk, Quality Ratings, and Credit Spreads 8.7 Municipal Bond Markets 8.8 Conclusion CHAPTER 9 Intermediary Debt Securities Introduction Bank Securities Banker's Acceptances Mortgage-Backed and Asset-Backed Securities Investment Funds Insurance Companies and Pension Funds Conclusion 309

5 CONTENTS CHAPTER 10 International Debt Securities Introduction International Debt Securities The Foreign Bond Market The Eurobond Market Non-U.S. Domestic Bonds Emerging Market Debt Global Fixed-Income Mutual Funds and ETFs Foreign Bond Risk and Sovereign Bond Ratings Eurocurrency Market The Foreign Currency Market and Exchange-Rate Risk Conclusion CHAPTER 11 Residential Mortgages and Mortgage-Backed Securities Introduction Residential Mortgage Loans Mortgage Portfolio, Mortgage-Backed Securities Features of Mortgage-Backed Securities Collateralized Mortgage Obligations and Strips Evaluating Mortgage-Backed Securities Conclusion CHAPTER 12 Nonagency Residential MBSs, Commercial MBSs, and Other Asset-Backed Securities Introduction Nonagency Mortgage-Backed Securities Commercial Mortgage-Backed Securities Asset-Backed Securities 396

6 Contents Xj 12.5 Collateralized Debt Obligations Conclusion PART THREE Bond Strategies and the Evaluation of Bonds with Embedded Options 411 CHAPTER 13 Bond Investment Strategies Introduction Active Investment Strategies Passive Bond Management Strategies Bond Immunization Strategies Conclusion CHAPTER 14 Binomial Interest Rate Trees and the Valuation of Bonds with Embedded Options Introduction Binomial Interest Rate Model Valuing Bonds with Other Option Features Convertible Bond Valuing Mortgage-Backed Securities Conclusion CHAPTER 15 Estimating the Binomial Tree Introduction Subdividing the Binomial Tree Estimating the Binomial Tree u and d Estimation Approach Calibration Model Option-Adjusted Spread 503

7 XII CONTENTS Duration and Convexity A Note on the Black-Scholes Option Pricing Model Conclusion PART-FOUR Oebt Derivatives: Futures and Options CHAPTER 16 Futures Contracts on Debt Securities: Fundamentals CHAPTER 17 Introduction The Market and Characteristics of Futures on Debt The Nature of Futures Trading and the Role of the Clearinghouse and Margins Futures Hedging Futures Pricing Conclusion Interest Rate Options Contracts: Fundamentals CHAPTER 18 Introduction Options Terminology Markets and Types of Interest Rate Options Option Positions Options Trading Microstructure Option Price Relationships Conclusion Managing Fixed-Income Positions with Interest Rate Derivatives Introduction Hedeine Fixed-Income Positions Securities

8 Contents Xiii 18.3 Cross Hedging Speculating with Interest Rate Derivatives Synthetic Debt and Investment Positions Using Options to Set a Cap or Floor on a Cash Flow Conclusion CHAPTER 19 Managing Fixed-Income Positions with OTC Derivatives Introduction Hedging with OTC Derivatives Hedging a Series of Cash Flows: OTC Caps and Floors Financing Caps and Floors: Collars and Corridors Other Interest Rate Products Hedging Currency Positions with Foreign Currency Options Conclusion PART-HUE. Swaps CHAPTER 20 Interest Rate Swaps 20.1 Introduction 20.2 Generic Interest Rate Swaps 20.3 Swap Market 20.4 Swap Valuation 20.5 Comparative Advantage and the Hidden Option 20.6 Swaps Applications 20.7 Credit Risk 20.8 Conclusion

9 XiV CONTENTS CHAPTER 21 Swap Derivatives: Forward Swaps and Swaptions 21.1 Introduction 21.2 Forward Swaps 21.3 Swaptions 21.4 Cancelable and Extendable Swaps 21.5 Nongeneric Swaps 21.6 Conclusion CHAPTER 22 Currency: and Credit Default Swaps 22.1 Introduction 22.2 Currency Swaps 22.3 Credit Default Swaps 22.4 Conclusion APPENDIX A Uses of Exponents and Logarithms APPENDIX B Mathematical Statistical Concepts 719 APPENDIX C Primer on Return, Present Value, and Future Value 727 APPENDIX D Web Site Information and Examples 737 APPENDIX E Global Investments and Exchange Rates 745 APPENDIX F Arbitrage Features of the Calibration Model 747 APPENDIX 6 T-Bond Delivery Procedure and Equilibrium Pricing 749

10 Contents XV APPENDIX H Pricing Interest Rate Options with a Binomial Interest Tree 753 APPENDIX I Pricing Interest Rate Options with the Black Futures Option Model 763 What's on the Companion Web Site 760 Answers and Solutions to Select End-of-Chapter Problems 771 Glossary of Terms 831 Index 855