Fixed Income Mathematics, 4E: Analytical & Statistical Techniques / Edition 4

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Learn how to arrive at accurate, reliable valuations for every key fixed income security—every time

The concepts and methodologies for evaluating fixed income securities have changed dramatically over the past decade. Fixed Income Mathematics, Fourth Edition, explains the numbers behind these changes and provides you with the knowledge you need to consistently control both the cost and risk of investing in debt.

Along with updated material on the new generation of asset-backed securities (ABS), updated sections on statistical techniques, and simulation and optimization models, this updated fourth edition features new chapters on:

  • Interest rate modeling
  • Credit risk concepts and measures for corporate bonds
  • Prepayment modeling
  • Basics of MBS structuring
  • Statistical techniques for credit scoring and risk factor identification
  • Tracking error and multi-factor risk models

Fixed Income Mathematics features material and analysis on yield measures for fixed rate bonds and floating rate bonds, key rate duration and yield curve curvature, cash flow characteristics of collateralized debt obligations, and much more. It is quite simply the necessary reference volume for fixed income portfolio managers and practitioners.

For nearly two decades, Frank Fabozzi's classic Fixed Income Mathematics has provided portfolio managers and other finance professionals with the industry's most comprehensive, easy-to-understand reference for making the most profitable fixed income investment decisions by dramatically improving the precision of the numbers that underlie those decisions. Now Fabozzi gives you the latest on the unprecedented number of new analytical tools and techniques that have recently been introduced to structured finance.

More than thirty accessible chapters cover fundamental and all-new aspects of the constantly evolving fixed income field, including:

  • Time Value of Money—How to compute future value of an investment, present value of cash flows, and yield
  • Bond Pricing for Option Free Bonds and Conventional Yield Measures—How value is determined, conventional yield and spread measures for bonds, the yield curve, and the determination of spot rates and forward rates
  • Return Analysis—potential sources of monetary return, use of total return, and techniques for measuring the historical return for a portfolio
  • Price Volatility for Option-Free Bonds—Price volatility of bonds without embedded options, two measures of price volatility, how to calculate convexity, and measures for quantifying the exposure of a shift in the yield curve
  • Analyzing Bonds with Embedded Options—Interest rate modeling, investment and price characteristics of options, and techniques for valuing bonds with embedded options
  • Credit Risk—Credit risk concepts and measures for corporate bond and credit analysis
  • Analyzing Securitized Products—Measures used for securitized products, cash flow characteristics of amortizing loans and MBS, results of recent prepayment models, the structuring process, analysis of agency MBS
  • Statistical Techniques and Their Applications in Fixed Income Analysis—Basics of probability theory and statistics, regression analysis, credit scoring and risk factor identification, tracking error, Monte Carlo simulation, optimization techniques

To deal with the complexity of fixed income instruments, you have to embrace new valuation methodologies, analytical techniques, and frameworks for credit risk modeling. Fixed Income Mathematics arms you with these new tools, explaining how to implement them and successfully integrate them into existing investment programs.

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Editorial Reviews

Explains the latest concepts in the fixed income market, from the basic tenets of financial mathematics to new methodologies for evaluation of instruments such as securities with embedded options and mortgage-backed securities. Topics include measuring historical return performance, duration and yield curve risk, the time value of money, probability theory, and regression analysis. Contains worked examples. For fixed income participants. Annotation c. Book News, Inc., Portland, OR (
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Product Details

  • ISBN-13: 9780071460736
  • Publisher: McGraw-Hill Professional Publishing
  • Publication date: 12/16/2005
  • Edition description: REV
  • Edition number: 4
  • Pages: 600
  • Sales rank: 587,517
  • Product dimensions: 6.40 (w) x 9.20 (h) x 1.80 (d)

Meet the Author

Frank J. Fabozzi, Ph.D., CFA, is the Frederick Frank Adjunct Professor of Finance at Yale University's School of Management and editor of the Journal of Portfolio Management. One of the world's foremost authorities on fixed income securities and derivative instruments, Fabozzi is the bestselling author or editor of more than fifty books, including The Handbook of Fixed Income Securities.

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Table of Contents

Introduction 1

Future Value 7
Present Value 19
Yield (Internal Rate of Return) 34

The Price of a Bond 47
Conventional Yield Measures for Bonds 73
The Yield Curve, Spot Rate Curve, and Forward Rates 93

Potential Sources of Dollar Return 115
Total Return 129
Measuring Historical Performance 153

Price Volatility of Option-Free Bonds 165
Price Volatility Measures: PVBP and YV of a Price Change 178
Price Volatility Measures: Duration 187
Price Volatility Measures: Convexity 219
Duration and the Yield Curve 243

Call Options: Investment and Price 257
Characteristics Valuation and Price Volatility of Bonds with Embedded Options 274

Cash flow Characteristics of Mortgages 303
Cash Flow Characteristics of Mortgage-Backed Securities 322
Analysis of Mortgage-Backed Securities 356

Probability Theory 377
Simulation 403
Regression Analysis 419
Optimization Models 435
Index 443

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