Fixed Income Mathematics, Fifth Edition: Analytical and Statistical Techniques

by Frank J. Fabozzi, Francesco Fabozzi

Overview

The standard reference for fixed income portfolio managers—fully updated with new analytical frameworks

Fixed Income Mathematics is known around the world as the leading guide to understanding the concepts, valuation models for bonds with embedded option, mortgage-backed securities, asset-backed securities, and other fixed income instruments, and portfolio analytics.

Fixed Income Mathematics begins with basic concepts of the mathematics of finance, then systematically builds on them to reveal state-of-the-art methodologies for evaluating them and managing fixed-income portfolios. Concepts are illustrated with numerical examples and graphs, and you need only a basic knowledge of elementary algebra to understand them.

This new edition includes several entirely new chapters―Risk-Adjusted Returns, Empirical Duration, Analysis of Floating-Rate Securities, Holdings-Based Return Attribution Analysis, Returns-Based Style Attribution Analysis, Measuring Bond Liquidity, and Machine Learning―and provides substantially revised chapters on:

• Interest rate modeling
• Probability theory
• Optimization models and applications to bond portfolio management
• Historical return measures
• Measuring historical return volatility

The concepts and methodologies for managing fixed income portfolios has improved dramatically over the past 15 years. This edition explains these changes and provides the knowledge you need to value fixed-income securities and measure the various types of risks associated with individual securities and portfolios.

Product Details

ISBN-13:	9781264258284
Publisher:	McGraw Hill LLC
Publication date:	09/06/2022
Sold by:	Barnes & Noble
Format:	eBook
Pages:	608
File size:	34 MB
Note:	This product may take a few minutes to download.

About the Author

Frank J. Fabozzi, Ph.D., CFA, CPA, is professor of practice at the Carey Business School at Johns Hopkins University. He is the editor of The Journal of Portfolio Management, co-editor of the The Journal of Financial Data Science, and associate editor of The Journal of Fixed Income. and serves on the board of directors of the BlackRock Fixed Income Funds and the BlackRock BCIA Funds Board. Recipient of the CFA Institute’s 2007 C. Stewart Sheppard Award and 2015 James R. Vertin Award. In 2002, Frank was inducted into the Fixed Income Society’s Hall of Fame.

Francesco A. Fabozzi is the managing editor of The Journal of Financial Data Science and the director of Data Science for the CFA Institute Research Foundation. He has worked as a research associate at NYU’s Courant Institute in the Department of Mathematical Finance and is on the Curriculum Board of the Financial Data Professionals Institution. He has coauthored several books on asset management. He earned an undergraduate degree in economics from Princeton University, a master’s degree in Financial Analytics from the Stevens Institute of Technology, where he is an ABD doctoral student in data science.

Table of Contents

Preface ix

Fifth Versus Fourth Edition xi

Acknowledgments xv

Chapter 1 Introduction 1

Part 1 Time Value of Money

Chapter 2 Future Value 11

Chapter 3 Present Value 21

Chapter 4 Yield (Internal Rate of Return) 35

Part 2 Bond Pricing for Option-Free Bonds and Conventional Yield Measures

Chapter 5 The Price of a Bond 45

Chapter 6 Bond Yield Measures 63

Chapter 7 The Yield Curve, Spot-Rate Curve, and Forward Rates 77

Part 3 Return Analysis and Return Measures

Chapter 8 Potential Sources of Dollar Return 99

Chapter 9 Total Return 107

Chapter 10 Historical Return Measures 119

Chapter 11 Risk-Adjusted Returns/Reward-Risk Ratios 131

Part 4 Price Volatility for Option-Free Bonds

Chapter 12 Price Volatility Properties of Option-Free Bonds 143

Chapter 13 Duration as a Measure of Price Volatility 159

Chapter 14 Combining Duration and Convexity to Measure Price Volatility 191

Chapter 15 Duration and the Yield Curve 209

Chapter 16 Empirical Duration 221

Part 5 Historical Return and Yield Volatility

Chapter 17 Measuring Historical Return Volatility 231

Chapter 18 Measuring and Forecasting Yield Volatility 241

Part 6 Analyzing Bonds with Embedded Options

Chapter 19 Interest-Rate Modeling 251

Chapter 20 Call Options: Investment and Price Characteristics 277

Chapter 21 Valuation and Price Volatility of Bonds with Embedded Options 293

Chapter 22 Analysis of Floating-Rate Securities 319

Part 7 Credit and Liquidity Concepts

Chapter 23 Credit Risk Concepts and Measures 341

Chapter 24 Measuring Bond Liquidity 357

Part 8 Analyzing Securitized Products

Chapter 25 Cash-Flow Characteristics of Fixed-Rate Amortizing Mortgage Loans 375

Chapter 26 Cash-Flow Characteristics of Mortgage-Backed Securities 387

Chapter 27 Analysis of Agency Mortgage-Backed Securities 411

Part 9 Performance Analysis

Chapter 28 Holdings-Based Performance Attribution Analysis 427

Chapter 29 Returns-Based Style Attribution Analysis 445

Part 10 Statistical and Optimization Techniques

Chapter 30 Probability Distributions and Statistics 457

Chapter 31 Regression and Principal Component Analysis 475

Chapter 32 Multifactor Risk Models and Their Application to Portfolio Construction 497

Chapter 33 Monte Carlo Simulation 527

Chapter 34 Optimization Models 541

Chapter 35 Machine Learning 565

Index 579