Handbook of Fixed-Income Securities

631 Pages·2016·17.34 MB·English

by  Pietro Veronesi

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Handbook of Fixed-Income
Securities
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Wiley Handbooks in
FINANCIAL ENGINEERING AND ECONOMETRICS
Advisory Editor
Ruey S. Tsay
The University of Chicago Booth School of Business, USA
A complete list of the titles in this series appears at the end of this volume.
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Handbook of Fixed-Income
Securities
Editedby
PietroVeronesi
UniversityofChicagoBoothSchoolofBusiness
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Copyright©2016byJohnWiley&Sons,Inc.Allrightsreserved
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LibraryofCongressCataloging-in-PublicationData
Names:Veronesi,Pietro.
Title:Handbookoffixed-incomesecurities/editedbyPietroVeronesi.
Othertitles:Handbookoffixed-incomesecurities(Wiley)
Description:Hoboken,NewJersey:JohnWiley&Sons,Inc.,[2016]|Includes
bibliographicalreferencesandindex.
Identifiers:LCCN2015035755(print)|LCCN2016000496(ebook)|ISBN
9781118709191(cloth)|ISBN9781118709184(AdobePDF)|ISBN
9781118709269(ePub)
Subjects:LCSH:Fixed-incomesecurities.
Classification:LCCHG4650.H3662016(print)|LCCHG4650(ebook)|DDC
332.63/2–dc23
LCrecordavailableathttp://lccn.loc.gov/2015035755
Typesetin10/12ptTimesLTStdbySPiGlobal,Chennai,India
PrintedintheUnitedStatesofAmerica
10 9 8 7 6 5 4 3 2 1
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To Tommaso, Gabriele, Sofia, and Micaela.
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Contents
NotesonContributors xix
Preface xxv
PARTI FIXEDINCOMEMARKETS 1
1 FixedIncomeMarkets:AnIntroduction 3
(cid:2) 1.1 Introduction / 3 (cid:2)
1.2 U.S.TreasuryBills,Notes,andBonds / 7
1.3 InterestRates,Yields,andDiscounting / 8
1.4 TheTermStructureofInterestRates / 9
1.4.1 TheEconomicsoftheNominalYieldCurve / 9
1.4.2 TheExpectationsHypothesis / 13
1.4.3 ForwardRatesasExpectationofFutureInterestRates? / 16
1.4.4 InterpretingaSteepeningoftheYieldCurve / 17
1.5 PricingCouponNotesandBonds / 17
1.5.1 EstimatingtheZero-CouponDiscountFunction / 18
1.5.2 DataandBondIlliquidity / 19
1.6 Inflation-ProtectedSecurities / 19
1.7 FloatingRateNotes / 22
1.8 Conclusion / 24
References / 24
2 MoneyMarketInstruments 25
2.1 OverviewoftheMoneyMarket / 25
2.2 U.S.TreasuryBills / 26
2.3 CommercialPaper / 27
2.3.1 GeneralFactsaboutCommercialPaper / 27
2.3.2 Nonasset-BackedCommercialPaper / 27
2.3.3 Asset-BackedCommercialPaper / 28
2.4 DiscountWindow / 29
2.5 Eurodollars / 29
2.5.1 EurodollarFutures / 31
vii
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viii CONTENTS
2.6 RepurchaseAgreements / 32
2.6.1 TypesofReposandHaircuts / 32
2.6.2 BasicFormsofRepoCollateral / 33
2.6.3 RepoRatesandCollateralValueRisks / 34
2.6.4 TheRunonRepoDuringtheFinancialCrisis / 34
2.7 InterbankLoans / 35
2.7.1 FederalFunds / 35
2.7.2 LIBOR / 37
2.7.3 OvernightIndexSwapsandLIBOR–OISSpreads / 38
2.7.4 AModelofLIBOR–OISSpreads / 38
2.8 Conclusion / 40
References / 40
3 Inflation-AdjustedBondsandtheInflationRiskPremium 41
3.1 Inflation-IndexedBonds / 41
3.1.1 MechanicsofTIPS / 42
3.1.2 ValuinganInflation-IndexedBond / 42
3.2 InflationDerivatives / 42
3.2.1 ConstructingaSyntheticNominalTreasuryBondwithInflationSwaps / 42
3.3 No-ArbitragePricing / 43
3.3.1 Zero-CouponBonds / 43
3.4 InflationRiskPremium / 43
3.4.1 DeterminantsoftheInflationRiskPremium / 44
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3.5 ALookattheData / 45
3.5.1 Break-EvenRates / 45
3.5.2 InflationSwapRates / 46
3.5.3 InflationRiskPremium / 49
3.6 Conclusion / 50
3.7 Appendix / 50
3.7.1 Breeden–Lucas–RubinsteinExample / 50
3.7.2 DisasterRisk / 51
3.8 DataAppendix / 51
References / 52
4 Mortgage-RelatedSecurities(MRSs) 53
4.1 PurposeoftheChapter / 53
4.2 IntroductiontoMRSs / 54
4.2.1 MortgageandSecuritization / 54
4.2.2 TheCashFlowsofMortgagePools / 55
4.3 ValuationOverview / 57
4.3.1 OAS,OAD,andNegativeConvexity / 58
4.3.2 ModelingPrepaymentandDefault / 60
4.4 AnalyzinganMRS / 62
4.4.1 ModelingPrepaymentandDefault / 62
4.4.2 FreddieMac’sSTACR / 67
4.4.3 AnalyzingtheSTACRSeries2013-DN1 / 71
4.5 Summary / 72
References / 73
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