Bond Math: The Theory Behind the Formulas, + Website (Wiley Finance 2nd Revised edition)

Bond Math: The Theory Behind the Formulas, + Website (Wiley Finance 2nd Revised edition)

By: Donald J. Smith (author)Hardback

1 - 2 weeks availability


A bond calculation quick reference, complete with context and application insights Bond Math is a quick and easy resource that puts the intricacies of bond calculations into a clear and logical order. This simple, readable guide provides a handy reference, teaching the reader how to think about the essentials of bond math. Much more than just a book of formulas, the emphasis is on how to think about bonds and the associated math, with plenty of examples, anecdotes, and thought-provoking insights that sometimes run counter to conventional wisdom. This updated second edition includes popular Bloomberg pages used in fixed-income analysis, including the Yield and Spread Analysis page, plus a companion website complete with an Online Workbook of multiple choice questions and answers and spreadsheet exercises. Detailed coverage of key calculations, including thorough explanations, provide practical guidance to working bond professionals. The bond market is the largest and most liquid in the world, encompassing everything from Treasuries and investment grade corporate paper to municipals and junk bonds, trading over $900 billion daily in the U.S. alone. Bond Math is a guide to the inevitable calculations involved in managing bonds, with expert insight on the portfolios and investment strategies that puts the math in perspective. Clear and concise without sacrificing detail, this book helps readers to: * Delineate the characteristics of different types of debt securities * Calculate implied forward and spot rates and discount factors * Work with rates of return, yield statistics, and interest rate swaps * Understand duration-based risk measures, and more Memorizing formulas is one thing, but really learning how to mentally approach the math behind bonds is something else entirely. This approach places calculations in context, and enables easier transition from theory to application. For the bond professional seeking a quick math reference, Bond Math provides that and so much more.

Create a review

About Author

DONALD J. SMITH is an associate professor of finance at the School of Management, Boston University. Smith specializes in teaching fixed-income markets and risk management courses and has published widely in academic and trade journals, including the Financial Analysts Journal; Journal of Finance; Journal of Money, Credit, and Banking; Journal of Fixed Income; Journal of Financial Engineering; and many others.


Preface to the Second Edition xi Preface to the First Edition xiii CHAPTER 1 Money Market Interest Rates 1 Interest Rates in Textbook Theory 2 Money Market Add-On Rates 3 Money Market Discount Rates 6 Two Cash Flows, Many Money Market Rates 9 A History Lesson on Money Market Certificates 12 Periodicity Conversions 13 Treasury Bill Auction Results 15 The Future: Hourly Interest Rates? 19 Conclusion 21 CHAPTER 2 Zero-Coupon Bonds 23 The Story of TIGRS, CATS, LIONS, and STRIPS 24 Yields to Maturity on Zero-Coupon Bonds 27 Horizon Yields and Holding-Period Rates of Return 30 Changes in Bond Prices and Yields 32 Credit Spreads and the Implied Probability of Default 34 Conclusion 38 CHAPTER 3 Prices and Yields on Coupon Bonds 39 Market Demand and Supply 40 Bond Prices and Yields to Maturity in a World of No Arbitrage 44 Some Other Yield Statistics 48 Horizon Yields 52 Some Uses of Yield-to-Maturity Statistics 53 Implied Probability of Default on Coupon Bonds 55 Bond Pricing between Coupon Dates 56 A Real Corporate Bond 59 Conclusion 63 CHAPTER 4 Bond Taxation 65 Basic Bond Taxation 66 Market Discount Bonds 68 A Real Market Discount Corporate Bond 70 Premium Bonds 74 Original Issue Discount Bonds 77 Municipal Bonds 79 Conclusion 82 CHAPTER 5 Yield Curves 83 An Intuitive Forward Curve 84 Classic Theories of the Term Structure of Interest Rates 87 Accurate Implied Forward Rates 91 Money Market Implied Forward Rates 93 Calculating and Using Implied Spot (Zero-Coupon) Rates 96 More Applications for the Implied Spot and Forward Curves 99 Discount Factors 105 Conclusion 109 CHAPTER 6 Duration and Convexity 111 Yield Duration and Convexity Relationships 112 Yield Duration 115 The Relationship between Yield Duration and Maturity 118 Yield Convexity 121 Bloomberg Yield Duration and Convexity 125 Curve Duration and Convexity 129 Conclusion 138 CHAPTER 7 Floaters and Linkers 139 Floating-Rate Notes in General 140 A Simple Floater Valuation Model 141 A Somewhat More Complex Floater Valuation Model 146 An Actual Floater 149 Inflation-Indexed Bonds: C-Linkers and P-Linkers 157 Linker Taxation 162 Linker Duration 165 Conclusion 171 CHAPTER 8 Interest Rate Swaps 173 Pricing an Interest Rate Swap 174 Interest Rate Forwards and Futures 178 Inferring the Forward Curve 181 Valuing an Interest Rate Swap 185 Interest Rate Swap Duration 188 Collateralized Swaps 192 Traditional LIBOR Discounting 193 OIS Discounting 196 The LIBOR Forward Curve for OIS Discounting 198 Conclusion 202 CHAPTER 9 Bond Portfolios 205 Bond Portfolio Statistics in Theory 205 Bond Portfolio Statistics in Practice 208 A Real Bond Portfolio 213 Thoughts on Bond Portfolio Statistics 223 Conclusion 225 CHAPTER 10 Bond Strategies 227 Acting on a Rate View 228 An Interest Rate Swap Overlay Strategy 233 Classic Immunization Theory 237 Immunization Implementation Issues 242 Liability-Driven Investing 245 Closing Thoughts: Target-Duration Bond Funds 246 Technical Appendix 249 Acronyms 267 Bibliographic Notes 269 About the Author 275 Acknowledgments 277 About the Companion Website 279 Index 281

Product Details

  • publication date: 30/12/2014
  • ISBN13: 9781118866320
  • Format: Hardback
  • Number Of Pages: 304
  • ID: 9781118866320
  • weight: 500
  • ISBN10: 1118866320
  • edition: 2nd Revised edition

Delivery Information

  • Saver Delivery: Yes
  • 1st Class Delivery: Yes
  • Courier Delivery: Yes
  • Store Delivery: Yes

Prices are for internet purchases only. Prices and availability in WHSmith Stores may vary significantly