Pricing and Hedging Interest and Credit Risk Sensitive Instruments

An Introduction to Interest Rate and Credit Sensitive Instruments: Bond conventions; Bond markets; Trends in the global capital markets; Corporate bonds; Scope of this book; Exercises; The Sovereign Term Structure and the Risk Structure of Interest Rates: Objectives-pricing and hedging; Introduction to the term and credit risk structure of interest rates; The uses of the term structure and risk structure of interest rates; Theories of the sovereign term structure of interest rates; Theory of the risk structure of interest rates; How sovereign bonds are issued; Repos; Summary; Exercises; Measuring the Existing Sovereign Term Structure and the Risk Structure of Interest Rates: Measuring the sovereign term structure of interest rates; Frequently traded bonds; Zero coupon yields; Measuring continuous yield curves; Par coupon yield curves; Summary; Exercises; Modelling the Sovereign Term Structure of Interest Rates: The Binomial Approach The binomial approach; The simple model; Which short rate of interest should we model?; Pricing a bond using the interest rate tree; The problems with the simple model; Incorporating risk aversion; Exercises; Interest Rate Modelling: The term structure consistent approach Desirable features of an interest rate model; Ho and Lee (1986); Black Derman and Toy: Constant volatility; Black Derman and Toy (1990); Some other one-factor term structure consistent models; Summary; Exercises; Interest and Credit Risk Modelling: Evolutionary interest rate models; Vasicek (1977); Cox Ingersoll and Ross (1985); Other evolutionary models; Comparing the term structure consistent and evolutionary models; The problem with interest rate (and credit risk) models; Non-stochastic credit risk models; Jarrow and Turnbull (1995); Duffie and Singleton (1999); Other credit risk modelling approaches; Summary; Exercises; Hedging Sovereign Bonds: The Traditional Approach Introduction; Macaulay Duration; Modified duration; Other measures of interest rate sensitivity; Convexity; Hedging; Regression based hedge ratios; Duration based hedge ratio; Basis risk; Appendix; Exercises; Active and Passive Strategies: Introduction; Adjusting the duration of a portfolio; Active and passive strategies; Implementing a rate anticipation swap; Implementing an asset substitution swap; Portfolio immunisation; Balance sheet immunisation; Bond portfolio management; Exercises; Alternative Hedge Ratios: Improvements in modified duration hedge ratios; Fisher Weil; Key rate durations; Duration for corporate bonds; Delta hedging; Exercises; Pricing and Hedging Non-Fixed Income Securities: Introduction; Floaters; Inverse floaters; Caps floors and collars; Interest rate swaps; Exercises; Credit Derivatives: Introduction; Types of credit derivatives; Vulnerable derivatives; Credit default swaps; Issues in default swap pricing; Exercises; Embedded Options: Introduction; An introduction to callable/putable bonds; Measures of interest rate sensitivity for callable bonds; Sinking fund bonds; Exercises.