Trading the fixed income, inflation and credit markets : a relative value guide

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Title:

Trading the fixed income, inflation and credit markets : a relative value guide

Author:

Schofield, Neil C.

ISBN:

9780470742297

Personal Author:

Schofield, Neil C.

Edition:

Publication Information:

Chichester, West Sussex : Wiley, 2011.

Physical Description:

xviii, 291 p. : ill. ; 26 cm.

Series:

Wiley finance

Wiley finance series

General Note:

Formerly CIP.

Contents:

Machine generated contents note: 1.Product Fundamentals -- 1.1.Chapter Overview -- 1.2.Bond Fundamentals -- 1.2.1.Fixed income structures -- 1.2.2.Floating-rate notes -- 1.2.3.Inflation -- 1.3.Repurchase Agreements -- 1.4.Credit Fundamentals -- 1.5.Derivative Fundamentals -- 1.5.1.Futures -- 1.5.2.Forwards -- 1.5.3.Swaps -- 1.5.4.Vanilla options -- 1.5.5.Exotic options -- 2.Pricing Relationships -- 2.1.Relative Value -- 2.2.The Relative Value Triangle -- 2.3.Spot Pricing -- 2.3.1.Pricing fixed income securities -- 2.3.2.Par yield curves -- 2.3.3.Zero-coupon yield curves -- 2.3.4.Forward yield curves -- 2.3.5.Pricing floating-rate notes -- 2.3.6.Inflation pricing -- 2.3.7.Credit pricing -- 2.4.The Spot-Forward Relationship -- 2.4.1.Fixed income -- 2.4.2.Credit markets -- 2.5.The Spot-Swap Relationship -- 2.5.1.Pricing swaps - counterparty credit risk -- 2.6.The Forward-Swap Relationship -- 2.7.Pricing Options-Relationship With The Underlying Market --

Contents note continued: 2.7.1.Black-Scholes-Merton: an intuitive approach -- 2.7.2.From closed-form to binomial pricing techniques -- 2.7.3.Monte Carlo simulation -- 2.7.4.Put-call parity -- Appendix 2.1 Monetary Policy and Overnight Interest Rates -- Appendix 2.2 OIS Discounting -- 3.Market Risk Management -- 3.1.What Do We Mean By Risk? -- 3.2.Defining Market Risk -- 3.3.Spot Market Risk -- 3.3.1.Macaulay duration -- 3.3.2.Modified duration -- 3.3.3.Convexity -- 3.3.4.Dollar value of an 01 -- 3.3.5.Market risk of a floating-rate note -- 3.3.6.Market risk of credit instruments -- 3.4.Forward Risk -- 3.4.1.Fixed income -- 3.4.2.Credit -- 3.5.Swap Market Risk -- 3.5.1.Spot swap risk -- 3.5.2.Carry and roll down -- 3.5.3.Application of DV01 -- 3.5.4.Forward-starting swap risk -- 3.6.Option Risk Management -- 3.6.1.Delta -- 3.6.2.Gamma -- 3.6.3.Theta -- 3.6.4.Vega -- 3.6.5.Smiles, skews and surfaces -- 3.7.Value at Risk --

Contents note continued: 4.Expressing Views on the Interrelationships between Products -- 4.1.The Spot-Forward Relationship -- 4.1.1.Bond futures -- 4.1.2.The cheapest to deliver -- 4.1.3.Changes in the cheapest to deliver -- 4.1.4.The yield beta -- 4.1.5.Trading the basis -- 4.1.6.Implementing a basis trade -- 4.2.The Spot-Swap Relationship -- 4.2.1.Understanding swap spreads -- 4.2.2.Negative swap spreads -- 4.3.The Forward-Swap Relationship -- 4.4.Options and Trading Volatility -- 4.4.1.Expressing views on market direction and volatility -- 4.4.2.Assessing volatility: cheap or rich? -- 4.4.3.Expressing views on volatility of volatility -- 4.4.4.The relationship between volatility and the underlying asset -- 5.Identifying Value in Sovereign Bonds -- 5.1.What Is Relative Value? -- 5.2.Understanding the Yield Curve -- 5.2.1.Yield curve formation -- 5.2.2.How does the yield curve move? -- 5.2.3.Yield curve movements -- 5.2.4.How do yield curves actually move? --

Contents note continued: 5.2.5.Yield curve modelling -- 5.3.Measures of Spread -- 5.3.1.Decomposing bond yields -- 5.3.2.Swap spreads -- 5.3.3.CDS spreads -- 5.3.4.I-spread -- 5.3.5.TED spread -- 5.3.6.Z-spread -- 5.3.7.Option-adjusted spread -- 5.3.8.Asset swap spread -- 5.4.Identifying Value in Sovereign Bonds Using Asset Swaps -- 5.4.1.Determining the appropriate benchmark -- 5.4.2.Term structure of asset swap spreads -- 5.4.3.Assessing value in sovereign bonds -- 5.4.4.Forward asset swap spreads -- 5.4.5.Inflation-linked asset swaps -- 5.5.Summary of Yield Measures -- Appendix 5.1 Curve flattening trade -- 6.Trading the Yield Curve -- 6.1.Trading Terminology -- 6.1.1.Long or short? -- 6.1.2.Roll down and carry revisited -- 6.2.Trading the Short End of the Yield Curve -- 6.2.1.Money-market loans and deposits -- 6.2.2.Interest rate futures -- 6.2.3.Interest rate swaps -- 6.2.4.Options on single-period short-term interest rates -- 6.3.Trading the Slope of the Yield Curve --

Contents note continued: 6.3.1.Short-term interest rate futures vs. bond futures -- 6.3.2.Fed Funds futures vs. interest rate swaps -- 6.3.3.Bonds and swaps -- 6.3.4.Conditional curve trades -- 6.3.5.Identifying slope trades using swaptions -- 6.3.6.Volatility and the level of interest rates -- 6.4.Trading the Curvature of the Yield Curve -- 6.4.1.An overview of butterfly spreads -- 6.4.2.2s5s10s Butterfly trade using bonds -- 6.4.3.2s5s10s Butterfly trade using swaps -- 6.4.4.Forward and spot spreads and carry -- 6.4.5.Volatility and yield curve slope and curvature -- 6.5.Volatility, Curvature and Skew -- 6.6.Constant-Maturity Products -- 6.6.1.Product definitions -- 6.6.2.CMS product pricing -- 6.6.3.CMS sensitivities and impact on market -- 6.6.4.Applications of CMS products -- 6.7.Structured Products - Range Accruals -- 7.Relative Value in Credit -- 7.1.Applying the Relative Value Triangle to Credit -- 7.1.1.The bond-credit default swap relationship --

Contents note continued: 7.1.2.The forward-swap relationship -- 7.1.3.Volatility -- 7.2.Expressing Views on the Credit Term Structure -- 7.2.1.Steepening/flattening trades -- 7.2.2.Butterfly trades -- 7.2.3.Convexity -- 7.3.Expressing a View on a Single Reference Entity -- 7.3.1.Credit-linked notes -- 7.3.2.Expressing a view on a single reference entity - an example -- 7.4.Expressing a View on a Basket of Reference Entities -- 7.4.1.Total return swaps -- 7.4.2.Basket default swaps -- 7.4.3.Index tranche investing -- 8.Relative Value in Inflation -- 8.1.Payers and Receivers of Inflation -- 8.2.Term Structure of Breakeven Inflation and Real Yields -- 8.2.1.Trading the slope of inflation curves -- 8.2.2.The importance of liquidity -- 8.3.Seasonality -- 8.4.Identifying Value in Inflation-Linked Bonds -- 8.4.1.Fitted curves - cheap/rich analysis -- 8.4.2.Forward rate analysis -- 8.4.3.Butterfly trades -- 8.5.An Overview of Inflation-Linked Trading Strategies --

Contents note continued: 8.5.1.Inflation market risk -- 8.5.2.Forward prices and carry -- 8.5.3.Summary of popular inflation trades -- 8.6.Expressing Views on Breakeven Inflation -- 8.6.1.Cash strategies -- 8.6.2.Derivative strategies -- 8.6.3.Expressing views on swap breakevens -- 8.7.Expressing Views on Real Yields -- 8.7.1.Total return inflation swaps -- 8.7.2.Real rate swap -- 8.8.Forward Breakevens -- 8.8.1.Background -- 8.8.2.Assessing the risk premium -- 8.8.3.Trading forward breakevens using bonds -- 8.8.4.Trading forward breakevens using swaps -- 8.8.5.Calculating forward swap rates -- 8.8.6.Forward real-yield trades -- 8.9.Using Options to Express Views on Breakeven and Real Yields -- 9.Trading Axioms: An A to Z.

Abstract:

"In this book, the authors give an applied approach to relative value techniques, showing readers how to decide on the best place to put their money in order to get the best return. They cover multiple asset classes - fixed income, commodities and equities although the main focus is fixed income. They cover products that are rarely documented such as CMS floaters and structured interest and credit products. The initial part of the book will consider the main derivative products and their pricing interrelationships. It argues that within any asset class there are mathematical relationships that tie together four key building blocks: cash products, forwards / futures, swaps and options. The nature of these interrelationships means that there may be a variety of different ways in which a particular strategy can be expressed. The second part of the book will be focused primarily on relative value within a fixed income context and will look at strategies that build on the pricing relationships between products as well as those that focus on how to identify the optimal way to express a view on the movement of the yield curve. The third part of the book will take the main themes of relative value and show how they could be applied within other asset classes. "--

Subject Term:

BUSINESS & ECONOMICS / Investments & Securities.

Investments.

Finance, Personal.

Added Author:

Bowler, Troy.

Electronic Access:

Cover image http://catalogimages.wiley.com/images/db/jimages/9780470742297.jpg

Copies:

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Library	Material Type	Item Barcode	Shelf Number	Copy	Status
Searching... 1:IIEMSA	1:GEN-BOOK	33168025571825	332.632 S367T 2011	1	Searching... Unknown

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Summary

Trading the Fixed Income, Inflation and Credit Markets is a comprehensive guide to the most popular strategies that are used in the wholesale financial markets, answering the question: what is the optimal way to express a view on expected market movements? This relatively unique approach to relative value highlights the pricing links between the different products and how these relationships can be used as the basis for a number of trading strategies.

The book begins by looking at the main derivative products and their pricing interrelationships. It shows that within any asset class there are mathematical relationships that tie together four key building blocks: cash products, forwards/futures, swaps and options. The nature of these interrelationships means that there may be a variety of different ways in which a particular strategy can be expressed. It then moves on to relative value within a fixed income context and looks at strategies that build on the pricing relationships between products as well as those that focus on how to identify the optimal way to express a view on the movement of the yield curve. It concludes by taking the main themes of relative value and showing how they can be applied within other asset classes. Although the main focus is fixed income the book does cover multiple asset classes including credit and inflation.

Written from a practitioner's perspective, the book illustrates how the products are used by including many worked examples and a number of screenshots to ensure that the content is as practical and applied as possible.