Xhis book is designed to provide extensive coverage of the wide range of fixed income products and fixed income portfolio management strategies. Each chapter is written by an authority on the subject.
The eighth edition of the Handbook is divided into ten parts. Part One provides general information about the investment features of fixed income securities, the risks associated with investing in fixed income securities, and background information about fixed income primary and secondary markets. The basics of fixed income analytics—bond pricing, yield measures, spot rates, forward rates, total return, and price volatility measures (duration and convexity)—are also described in Part One.
Parts Two and Three cover the basic characteristics of the instruments traded in the market. Government securities and corporate debt obligations (both bonds and loans) are covered in Part Two. An important addition to the eighth edition is more extensive coverage of leveraged loans and covered bonds, as well as coverage of fixed income exchange traded funds. Part Three focuses on securitized products—mortgage-backed securities and asset-backed securities. The coverage of the nonagency residential mortgage-backed securities and commercial mortgage- backed securities reflects market developments that followed the subprime mortgage crisis in 2007. Unlike the seventh edition, this edition includes separate chapters on planned amortization class bonds, support bonds, accrual (Z) bonds, and stripped mortgage-backed securities.
The focus in Part Four is on the term structure of interest rates, both the use of the information contained in those rates and the modeling of the term structure. Part Five builds on the analytical framework explained in Part One. In this part, two methodologies for valuing fixed income securities are discussed: the lattice model and the Monte Carlo model. A by-product of these models is the optionadjusted spread. The valuation of convertible bonds is also covered in this part.
The topic of credit risk and its analysis is the subject of Part Six. Traditional methods of credit analysis for corporate bonds and municipal bonds are explained and illustrated. There is also coverage of the various approaches to credit risk modeling.
Multifactor risk models and their applications are explained in Part Seven. The more popular fixed income portfolio management strategies are covered in Part Eight. A framework for classifying the types of bond portfolio strategies is provided in the first chapter in Part Eight, Chapter 49. There is then coverage of quantitative management strategies versus a benchmark, global credit bond portfolio management, high-yield bond portfolio management, international bond portfolio management, and investing in distressed structured credit securities. In addition, there are several specialized chapters related to bond portfolios strategies, such as transition management and financing positions in the bond market, and hedge fund strategies.
Part Nine covers derivative instruments: interest-rate derivatives (futures/forward contracts, options, interest-rate swaps, and caps and floors) and credit derivatives (primarily credit default swaps). The basic feature of each instrument is described as well as how it is valued and used to control the risk of a fixed income portfolio. The basics of credit derivatives are also explained.
Performance evaluation and return attribution analysis are covered in the last three chapters of the Handbook in Part Ten. Coverage includes how these models are built and used, as well as the underlying principles in building these models.
There is one appendix that covers the various methodologies for calculating currency exposures in bond portfolios and the major international bond indexes.