Description :
This text makes available the most important methodological advances in bond evaluation from the past twenty years. With uncommon precision and a strong emphasis on the underlying economic fundamentals, it presents a unified framework for understanding the basic tools of bond evaluation, including duration, convexity, and immunization.
The most valuable feature of the book is a general immunization theorem that can be used by practitioners to protect investors against any change in the structure of spot interest rates. Also of note is the detailed presentation of the Heath-Jarrow-Morton model and a discussion of its relationships with classical immunization schemes.
Each chapter is followed by a series of questions, problem sets, and projects; detailed solutions to all of them appear at the end of the book.
“Bonds are mathematical securities, and Olivier de La Grandville gives us the economics, the theory, the math, the intuition, and the numerical examples in this wonderfully thorough book.”
—Roger Ibbotson, Yale School of Management
“The book can be described as a ‘dream’ toolbox for any bond portfolio analyst.”
—Milad Zarin, University of Neuchâtel
Content :
Contents: Introduction. A First Visit to Interest Rates and Bonds. An Arbitrage-Enforced Valuation of Bonds. The Various Concepts of Rates of Return on Bonds: Yield to Maturity and Horizon Rate of Return. Duration: Definition, Main Properties, and Uses. Duration at Work: The Relative Bias in the T-Bond Futures Conversion Factor. Immunization: A First Approach. Convexity: Definition, Main Properties, and Uses. The Importance of Convexity in Bond Management. The Yield Curve and the Term Structure of Interest Rates. Immunizing Bond Portfolios Against Parallel Moves of the Spot Rate Structure. Continuous Spot and Forward Rates of Return, with Two Important Applications. Two Important Applications. Estimating the Long-Term Expected Rate of Return, Its Variance, and Its Probability Distribution. Introducing the Concept of Directional Duration. A General Immunization Theorem, and Applications. Arbitrage Pricing in Discrete and Continuous Time. The Heath-Jarrow-Morton Model of Forward Interest Rates, Bond Prices, and Derivatives. The Heath-Jarrow-Morton Model at Work: Applications to Bond Immunization. By Way of Conclusion: Some Further Steps. Answers to Questions. Further Reading. References. Index.
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