Foreword xiii Preface xvii About the Authors xix PART ONE Introduction to Bonds 1 CHAPTER 1 The Bond Instrument 3 CHAPTER 2 Bond Instruments and Interest-Rate Risk 43 Appendix 2.1 Formal Derivation of Modifi ed-Duration Measure 59 Appendix 2.2 Measuring Convexity 59 Appendix 2.3 Taylor Expansion of the Price/Yield Function 61 CHAPTER 3 Bond Pricing, Spot, and Forward Rates 65 Appendix 3.1 The Integral 83 Appendix 3.2 The Derivation of the Bond Price Equation in Continuous Time 85 CHAPTER 4 Interest-Rate Modelling 89 Appendix 4.1 Geometric Brownian Motion 101 CHAPTER 5 Fitting the Yield Curve 105 Appendix 5.1 Linear Regression: Ordinary Least Squares 124 Appendix 5.

2 Regression Splines 127 PART TWO Selected Market Instruments 133 CHAPTER 6 The Money Markets 135 Appendix 6.1 179 CHAPTER 7 Hybrid Securities and Structured Securities 181 CHAPTER 8 Bonds with Embedded Options and Option-Adjusted Spread Analysis 205 Appendix 8.1 Calculating Interest Rate Paths Using Microsoft Excel 232 CHAPTER 9 Infl ation-Indexed Bonds and Derivatives 235 Appendix 9.1 Current Issuers of Public-Sector Indexed Securities 256 Appendix 9.2 U.S. Treasury Infl ation-Indexed Securities (TIPS) 257 CHAPTER 10 Introduction to Securitisation and Asset-Backed Securities 261 PART THREE Derivative Instruments 297 CHAPTER 11 Forwards and Futures Valuation 299 CHAPTER 12 Bond Futures Contracts 309 Appendix 12.1 The Conversion Factor for the Long Gilt Future 324 CHAPTER 13 Swaps 329 Appendix 13.

1 Calculating Futures Strip Rates and Implied Swap Rates 370 CHAPTER 14 Credit Derivatives I: Instruments and Applications 375 Appendix 14.1 Bond Credit Ratings 418 CHAPTER 15 Credit Derivatives II: Pricing, Valuation, and the Basis 421 CHAPTER 16 Options I 435 Appendix 16.1 Summary of Basic Statistical Concepts 456 Appendix 16.2 Lognormal Distribution of Returns 457 Appendix 16.3 Black-Scholes Model in Microsoft Excel 458 CHAPTER 17 Options II 461 PART FOUR Bond Trading and Hedging 475 CHAPTER 18 Value-at-Risk and Credit VaR 477 Appendix 18.1 Assumption of Normality 513 CHAPTER 19 Government Bond Analysis, the Yield Curve, and Relative-Value Trading 517 CHAPTER 20 Approaches to Trading and Hedging 551 Appendix 20.1 Summary of Derivation of Optimum Hedge Equation 571 Appendix 20.2 Forward-Rate Structure in Conventional Yield-Curve Environment 571 CHAPTER 21 Derivatives Risk Management: Convexity, Collateral, and Correlation 573 APPENDIX A Statistical Concepts 621 APPENDIX B Basic Tools 627 APPENDIX C Introduction to the Mathematics of Fixed-Income Pricing 633 APPENDIX D About the Companion Website 639 Glossary 641 Index 669.