Fixed Income Securities

Fixed income practitioners need to understand the conceptual frameworks of their field; to master its quantitative tool-kit; and to be well-versed in its cash-flow and pricing conventions. Fixed Income Securities, Third Edition by Bruce Tuckman and Angel Serrat is designed to balance these three objectives. The book presents theory without unnecessary abstraction; quantitative techniques with a minimum of mathematics; and conventions at a useful level of detail.

The book begins with an overview of global fixed income markets and continues with the fundamentals, namely, arbitrage pricing, interest rates, risk metrics, and term structure models to price contingent claims. Subsequent chapters cover individual markets and securities: repo, rate and bond forwards and futures, interest rate and basis swaps, credit markets, fixed income options, and mortgage-backed-securities.

Fixed Income Securities, Third Edition is full of examples, applications, and case studies. Practically every quantitative concept is illustrated through real market data. This practice-oriented approach makes the book particularly useful for the working professional.

This third edition is a considerable revision and expansion of the second. Most examples have been updated. The chapters on fixed income options and mortgage-backed securities have been considerably expanded to include a broader range of securities and valuation methodologies. Also, three new chapters have been added: the global overview of fixed income markets; a chapter on corporate bonds and credit default swaps; and a chapter on discounting with bases, which is the foundation for the relatively recent practice of discounting swap cash flows with curves based on money market rates.

This university edition includes problems which students can use to test and enhance their understanding of the text.

Preface to the Third Edition xi
Acknowledgments xiii
An Overview of Global Fixed Income Markets 1
Part One The Relative Pricing of Securities with Fixed Cash Flows 47
Chapter 1 Prices, Discount Factors, and Arbitrage 51
Chapter 2 Spot, Forward, and Par Rates 69
Chapter 3 Returns, Spreads, and Yields 95
Part Two Measures of Interest Rate Risk and Hedging 119
Chapter 4 One-Factor Risk Metrics and Hedges 123
Chapter 5 Multi-Factor Risk Metrics and Hedges 153
Chapter 6 Empirical Approaches to Risk Metrics and Hedging 171
Part Three Term Structure Models 201
Chapter 7 The Science of Term Structure Models 207
Chapter 8 The Evolution of Short Rates and the Shape of the Term Structure 229
Chapter 9 The Art of Term Structure Models: Drift 251
Chapter 10 The Art of Term Structure Models: Volatility and Distribution 275
Chapter 11 The Gauss+ and LIBOR Market Models 287
Part Four Selected Securities and Topics 325
Chapter 12 Repurchase Agreements and Financing 327
Chapter 13 Forwards and Futures: Preliminaries 351
Chapter 14 Note and Bond Futures 373
Chapter 15 Short-Term Rates and Their Derivatives 401
Chapter 16 Swaps 435
Chapter 17 Arbitrage with Financing and Two-Curve Discounting 457
Chapter 18 Fixed Income Options 483
Chapter 19 Corporate Bonds and Credit Default Swaps 527
Chapter 20 Mortgages and Mortgage-Backed Securities 563
Chapter 21 Curve Construction 591
References 607
Exercises 609
Index 623