Details

Fixed Income Trading and Risk Management

The Complete Guide
Wiley Finance 1. Aufl.

von: Alexander During
54,99 €
Verlag:	Wiley
Format:	EPUB
Veröffentl.:	23.12.2020
ISBN/EAN:	9781119756354
Sprache:	englisch
Anzahl Seiten:	464

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Titelbeschreibung

A unique, authoritative, and comprehensive treatment of fixed income markets Fixed Income Trading and Risk Management: The Complete Guide delivers a comprehensive and innovative exposition of fixed income markets. Written by European Central Bank portfolio manager Alexander During, this book takes a practical view of how several different national fixed income markets operate in detail. The book presents common theoretical models but adds a lot of information on the actually observed behavior of real markets. You’ll benefit from the book’s: <ul> <li>Fulsome overview of money, credit, and monetary policy</li> <li>Description of cash instruments, inflation-linked debt, and credit claims</li> <li>Analysis of derivative instruments, standard trading strategies, and data analysis</li> <li>In-depth focus on risk management in fixed income markets</li> </ul> Perfect for new and junior staff in financial institutions working in sales and trading, risk management, back office operations, and portfolio management positions, Fixed Income Trading and Risk Management also belongs on the bookshelves of research analysts and postgraduate students in finance, economics, or MBA programs.

Inhaltsverzeichnis

Foreword xv Part One Preliminaries Chapter 1 Introduction 3 Chapter 2 Money, Credit and Banking 9 2.1 Abstract properties of money 9 2.2 Early forms of money 11 2.2.1 Paper money and bank notes 14 2.3 Fiat money 15 2.3.1 Fiat money and trade 15 Chapter 3 Banks 17 3.1 Banks and bank money creation 17 3.2 Categories of banks 18 Chapter 4 Bank Money Creation 20 4.1 Single-bank introduction 20 4.2 Extension to multiple banks 22 4.3 Transfer settlement in central bank money 25 4.4 Trade and non-bank credit 28 4.4.1 Non-cash trading instruments 29 4.4.2 Discounting 30 4.4.3 Delineating payment instruments from money 30 4.5 Digital token monies and cryptocurrencies 31 4.6 The money multiplier 32 Chapter 5 The Role of Central Banks 34 5.1 Introduction 34 5.2 Monetary financing 39 Chapter 6 Monetary Policy 40 6.1 Objectives of monetary policy 40 6.2 Monetary policy under inflation targeting 43 6.3 Central bank operational frameworks 46 6.3.1 Symmetric interest rate corridors 47 6.3.2 Asymmetric lending corridors 49 Chapter 7 Operational Frameworks 50 7.1 Control of the money supply 50 7.2 Liquidity provision: Rediscounting, outright purchases and Lombard lending 51 7.3 Liquidity absorption: Asset sales and reverse repos 52 7.4 The impact of FX operations 52 Chapter 8 Interaction between Frameworks and Policy 54 8.1 Volatility 54 8.2 Collateral 55 Chapter 9 Non-Standard Monetary Policy 57 9.1 Quantitative easing 57 9.1.1 The Monetary Effect of Large-Scale Asset Purchases 61 9.1.2 Market liquidity and central bank asset purchases 62 9.1.3 Helicopter money 63 9.1.4 Choice of methods and assets 65 9.2 Practical experience 67 9.2.1 QE, money multipliers and FX 67 9.2.2 Bank of Japan 2013 QE experience 71 9.2.3 Lessons from the initial BoJ quantitative easing 72 9.3 Negative interest rates 73 9.4 The specific situation of the ECB 74 Part Two Cash Instruments Chapter 10 Contract and Instrument Types 79 10.1 Securities and bilateral contracts 79 10.2 Security identifiers 81 10.2.1 ISIN codes 81 10.2.2 CUSIP codes 83 Chapter 11 Trading and Settlement 85 11.1 Trading 85 11.1.1 Trading and price formation 85 11.1.2 Trading venues 86 11.1.3 The OTC trade lifecycle 87 The trade inquiry 89 Negotiation 89 Agreement 90 Recording 91 Enrichment 92 Reporting 92 Pre-confirmation 93 Allocation 93 Confirmation 94 Settlement instructions 94 Fails 95 Reconciliation 96 11.1.4 The exchange trade cycle 96 11.1.5 Trading in competition versus single dealer inquiries and orders 97 Mistrades 98 11.2 Settlement 98 11.2.1 Settlement mechanisms 99 11.2.2 Settlement conventions 99 Chapter 12 Central Clearing 101 12.1 Direct clearing 101 12.2 Indirect clearing 106 12.2.1 Agency clearing 106 12.2.2 Principal clearing 107 12.2.3 Hybrid clearing models 107 12.3 Contract value adjustments (xVA) 108 12.3.1 Credit Value Adjustment 108 12.3.2 Funding Value Adjustment 109 12.3.3 Debit Value Adjustment 110 Chapter 13 The Money Market 111 13.1 Money market instruments 111 13.2 Discount factors 112 13.3 Daycount conventions 114 13.4 Money market interest rates 115 13.5 Compounding 116 13.6 LIBOR, Euribor, and friends 117 13.7 Overnight benchmarks 119 13.8 Benchmark reform 120 13.9 Money market futures and futures trading 121 13.9.1 Money market futures 121 13.9.2 Identification of futures contracts 122 13.9.3 Futures trading basics 124 13.9.4 Convexity adjustment 124 Chapter 14 The Repo Market 126 14.1 The repurchase market 126 14.2 Haircut 128 14.3 Variations of repurchase transactions 128 14.4 Rehypothecation 130 Chapter 15 Spot and Forward Rates 131 15.1 Forward rates 131 15.2 No-arbitrage calculations 131 15.3 Official rates versus term rates 133 15.3.1 The turn premium 133 15.3.2 Matching policy expectations to market rates 134 Chapter 16 The Bond Market 137 16.1 Introduction 137 16.2 Cashflow types 138 16.2.1 Bullet bonds 138 16.2.2 Zero coupon bonds, perpetuals and annuities 139 16.3 Issuer types 142 16.3.1 Joint issuance 144 16.3.2 Supranationals 146 16.4 Governing law and contractual clauses 147 16.5 Bond markets 151 16.5.1 The primary market 153 16.5.2 The secondary market I: (interdealer market) 157 16.5.3 The secondary market II: (customer-facing market) 158 16.6 Accrued interest 158 16.7 Yield 159 16.7.1 Running yield 160 16.7.2 Simple yield 160 16.7.3 Compound yield 160 16.7.4 Bond-equivalent yield 161 16.8 Interest rate risk 163 16.9 Convexity 164 16.10 Bond value decomposition 165 16.11 Carry 167 Chapter 17 Floating-Rate Notes 169 17.1 Coupon reset mechanics 170 17.2 Libor and OIS-linked notes 171 17.3 Discount margin 173 17.4 CMS and CMT floaters 174 Chapter 18 Asset Markets and Liquidity 176 18.1 Concepts 176 18.2 Liquidity measurement 180 18.2.1 Taxonomy of liquidity measures 181 18.3 Examples 183 18.4 Liquidity premium 185 18.5 Liquidity and volatility 187 Chapter 19 Curves and Curve Models 189 19.1 Models 190 19.2 Yield curve representation and interpretations 191 19.2.1 Discount factors versus par curves 191 19.3 Market-based curve representations 193 19.3.1 Bootstrapping 193 19.3.2 Reverse bootstrapping 195 19.4 Parametric curve models 196 19.4.1 The Nelson-Siegel and Nelson-Siegel-Svensson splines 197 19.4.2 Polynomial splines 198 19.4.3 The exponential spline 199 19.4.4 The Vasicek spline 200 19.4.5 Composite models 202 19.5 Fitting curve models 203 Chapter 20 Curve Analysis 205 20.1 Expectations 205 20.2 Convexity bias 209 20.3 Term risk premium 211 20.4 Preferred habitat 212 20.4.1 Asset–liability matching 212 20.4.2 Regulatory constraints 213 20.4.3 Passive investing 214 20.4.4 Central bank reserve portfolios 215 20.4.5 Market technicals 215 Chapter 21 Carry and Roll-Down 217 Chapter 22 Curve Spreads 220 22.1 Z-spread 220 22.2 Par spread 221 22.3 Swap spreads 222 22.3.1 Asset swap spreads 222 22.3.2 I-spreads 223 22.3.3 The TED spread 224 Part Three Inflation-Linked Debt Chapter 23 Inflation-Indexed Bonds 227 23.1 Introduction 227 23.1.1 Cashflows of inflation-linked bonds 230 23.1.2 Quotation of index-linked bonds 232 23.2 Rebalancing, rebasing and revision of CPI indices 232 23.3 Inflation seasonality 234 23.4 Price formation in inflation-linked markets 238 23.5 Return measures of inflation-linked bonds 240 23.6 Breakeven inflation 241 23.7 Carry on inflation-indexed bonds 244 23.8 Comprehensive inflation modelling 245 23.9 Inflation models and expectations 249 Part Four Defaultable Claims Chapter 24 Credit Risk 255 24.1 Default, insolvency, and bankruptcy 255 24.2 Seniority and subordination 256 24.2.1 Time subordination and acceleration 256 24.2.2 Contractual subordination 256 24.2.3 Statutory subordination 257 24.2.4 Joint liabilities and credit support 258 24.2.5 Sovereign debt 259 24.3 The default process 259 24.3.1 Collective action clauses 261 24.3.2 Debt exchanges and consent solicitations 262 24.3.3 Managed defaults 263 24.3.4 Wind-downs 263 24.4 Credit ratings 264 24.4.1 Rating migration 266 24.4.2 Alternative rating approaches 270 Chapter 25 Covered Bonds 272 25.1 Statutory covered bonds 277 25.2 Danish covered bonds 279 25.3 Structured covered bonds 281 25.4 Covered bond credit risk analysis 282 Chapter 26 Asset-Backed Securities 284 26.1 The ABS issuance process 285 26.2 Default risk of ABS 286 26.3 Maturity of ABS 287 Chapter 27 Residential Mortgage-Backed Securities 289 27.1 Residential mortgage prepayments 290 27.2 Prepayment modelling 292 Part Five Derivatives Chapter 28 Bond Futures 301 28.1 Introduction 301 28.2 Futures trading patterns 303 28.2.1 Open interest and trading volume 303 28.2.2 CFTC data for US futures contracts 307 28.3 Valuation of physically delivered bond futures 310 28.3.1 Basis and implied repo rate 310 28.3.2 Conversion factors and the notional coupon 312 28.3.3 The cash-and-carry arbitrage 314 28.3.4 The quality option 315 28.3.5 Hedging with futures 316 28.4 Futures rolls 321 28.4.1 Roll ratios 324 28.4.2 Advanced futures delivery models 325 28.5 Delivery windows 326 28.6 Interaction between futures and bonds 327 28.7 Futures squeezes 329 28.8 Cash-settled futures 331 28.8.1 Exchange-for-physical transactions 332 28.9 New bond issues 332 Chapter 29 Swaps 334 29.1 Introduction 334 29.2 Plain vanilla swaps 336 29.3 Trade compression and re-couponing 338 Part Six Standard Trading Strategies Chapter 30 Trading Principles 343 30.1 Definitions 343 30.2 Trade identification 345 30.3 Trade portfolios 346 Chapter 31 Curve Trading 347 31.1 Simple curve trades 350 31.1.1 Outright Trades 350 31.1.2 Steepeners and Flatteners 350 31.1.3 Butterflies 353 31.1.4 Condors 354 31.2 Intrinsic curve movements 354 31.2.1 Alternative specifications 360 Chapter 32 Bond Trading 362 32.1 Bond relative value 362 32.2 Relative value strategies 363 32.2.1 Spread widener/tightener 363 32.2.2 Basis trade 364 32.2.3 Bond spread 365 32.2.4 Bond spread with curve hedge 365 32.2.5 Alternative strategies 366 Part Seven Risk Management Chapter 33 Principal Component Analysis 371 33.1 PCA as generalised regression 373 33.2 Measuring data complexity with PCA 375 Chapter 34 Bond Index Mechanics 378 34.1 Bond index principles 378 34.2 Index rebalancing 380 Chapter 35 Portfolio Risk Management 381 35.1 Risk-neutral portfolios 381 35.2 Index tracking 383 35.2.1 Factor analysis and spanning sets 385 35.2.2 Friction effects 387 Chapter 36 Hedging 389 36.1 Introduction 389 36.2 Duration-neutral hedges 390 36.3 Regression hedges 391 36.4 Yield curve model hedges 392 Chapter 37 Mean-Variance Optimisation 395 Chapter 38 Portfolio Rebalancing 403 38.1 Passive and semi-passive strategies 404 38.1.1 No reallocation 404 38.1.2 Passive management 404 38.1.3 Index replication 405 38.1.4 Constant asset allocation 405 38.1.5 Trend-Following 406 38.1.6 Mean reversion 406 38.2 Numerical examples 407 Part Eight References Chapter 39 Selected Global Bond Markets 413 39.1 Euro area 413 39.1.1 Austria 414 39.1.2 Belgium 415 39.1.3 Finland 416 39.1.4 France 416 39.1.5 Germany 418 39.1.6 Greece 421 39.1.7 Ireland 422 39.1.8 Italy 423 39.1.9 The Netherlands 424 39.1.10 Portugal 425 39.1.11 Spain 426 39.2 Iceland 427 39.3 Japan 428 39.4 Sweden 430 39.5 United Kingdom 431 39.6 United States of America 433 Bibliography 435 Index 439

Autorenportrait

ALEXANDER DÜRING is Adviser in the Bond Markets and International Operations division of the European Central Bank, working on the implementation of the ECB’s Asset Purchase Programme and market analytics. Before joining the ECB, he was Managing Director in Fixed Income Research at Deutsche Bank where he worked in London, Frankfurt and Tokyo. He holds a Doctor of Philosophy in Theoretical Physics and is a CFA® charterholder.

Back cover copy

Fixed Income Trading and Risk Management: The Complete Guide delivers a valuable and unique perspective on fixed income markets. Fixed income strategist and portfolio manager Alexander Düring provides readers with a comprehensive examination of several fixed income markets from the ground up, developing the commonalities and differences between those markets in great detail. He relies on over 20 years of international experience in the private sector and at the European Central Bank to inform this treatment of fixed income markets. The book covers fundamental and foundational topics including an introduction to money and credit, money creation by banks, the interaction of monetary frameworks and government policy, as well as monetary policy, before delving into more advanced subjects. Cash instruments, inflation-linked debt, defaultable claims, derivatives, standard trading strategies, data analysis and risk management are all covered in expansive detail. Written in an approachable but robust style, Fixed Income Trading and Risk Management combines a global outlook on fixed income markets with comprehensive coverage of the most relevant financial instruments. The author devotes space to the controversial debates that dominate the subject of debt, trading debt, and banking. Finally, he includes the complex mathematics used to determine the risk characteristics of various financial instruments. The book also offers insightful examinations of various markets, including money markets, the repo market, and the bond market. At the same time, no prior knowledge of fixed income markets is assumed or required. Foundational topics are covered in sufficient detail to allow relative newcomers to fully grasp the more advanced material that follows. Perfect for junior staff in financial institutions in sales and trading departments, risk management, back office, and portfolio management positions, Fixed Income Trading and Risk Management also belongs on the bookshelves of postgraduate students in finance or economics, as well as students in MBA programs. The book offers readers the opportunity to become fully conversant in the complex and nuanced world of fixed income trading and markets.