Bond Math: The Theory Behind the Formulas + Website

YOUR BOND CALCULATION QUICK REFERENCE THAT OFFERS CONTEXT AND APPLICATION INSIGHTS Revised and updated, the second edition of Bond Math offers professional investors a quick and easy resource that puts the intricacies of bond calculations into a clear and logical order. Bond Math is written to be an accessible and readable guide and is designed to be more than just a book of formulas. The author highlights how to think about bonds and presents the associated math, with plenty of illustrative examples, anecdotes, and thought-provoking insights that sometimes run counter to conventional wisdom. The second edition includes updated information on the popular Bloomberg pages used in fixed-income analysis, such as the Yield and Spread Analysis page, and comes with a companion website complete with an Online Workbook of multiple-choice questions and answers. Bond Math is your guide to the inevitable calculations involved in managing bonds, with expert insight on the portfolios and investment strategies that puts the math in perspective. Bond Math is clear and concise without sacrificing detail. If you work in fixed income (or aspire to) and use Bloomberg pages to access data on bonds, you need Bond Math .

Preface to the Second Edition Preface to the First Edition Chapter 1: Money Market Interest Rates Interest Rates in Textbook Theory Money Market Add–on Rates Money Market Discount Rates Two Cash Flows, Many Money Market Rates A History Lesson on Money Market Certificates Periodicity Conversions Treasury Bill Auction Results The Future: Hourly Interest Rates? Conclusion Chapter 2: Zero–Coupon Bonds The Story of TIGRS, CATS, LIONS, and STRIPS Yields to Maturity on Zero–Coupon Bonds Horizon Yields and Holding–Period Rates of Return Changes in Bond Prices and Yields Credit Spreads and the Implied Probability of Default Conclusion Chapter 3: Prices and Yields on Coupon Bonds Market Demand and Supply Bond Prices and Yields to Maturity in a World of No Arbitrage Some Other Yield Statistics Horizon Yields Some Uses of Yield–to–Maturity Statistics Implied Probability of Default on Coupon Bonds Bond Pricing between Coupon Dates A Real Corporate Bond Conclusion Chapter 4: Bond Taxation Basic Bond Taxation Market Discount Bonds A Real Market Discount Corporate Bond Premium Bonds Original Issue Discount Bonds Municipal Bonds Conclusion Chapter 5: Yield Curves An Intuitive Forward Curve Classic Theories of the Term Structure of Interest Rates Accurate Implied Forward Rates Money Market Implied Forward Rates Calculating and Using Implied Spot (Zero–Coupon) Rates More Applications for the Implied Spot and Forward Curves Discount Factors Conclusion Chapter 6: Duration and Convexity Yield Duration and Convexity Relationships Yield Duration The Relationship between Yield Duration and Maturity Yield Convexity Bloomberg Yield Duration and Convexity Curve Duration and Convexity Conclusion Chapter 7: Floaters and Linkers Floating–Rate Notes in General A Simple Floater Valuation Model A Somewhat More Complex Floater Valuation Model An Actual Floater Inflation–Indexed Bonds: C–Linkers and P–Linkers Linker Taxation Linker Duration Conclusion Chapter 8: Interest Rate Swaps Pricing an Interest Rate Swap Interest Rate Forwards and Futures Inferring the Forward Curve Valuing an Interest Rate Swap Interest Rate Swap Duration Collateralized Swaps Traditional LIBOR Discounting OIS Discounting The LIBOR Forward Curve for OIS Discounting Conclusion Chapter 9: Bond Portfolios Bond Portfolio Statistics in Theory Bond Portfolio Statistics in Practice A Real Bond Portfolio Thoughts on Bond Portfolio Statistics Conclusion Chapter 10: Bond Strategies Acting on a Rate View An Interest Rate Swap Overlay Strategy Classic Immunization Theory Immunization Implementation Issues Liability–Driven Investing Closing Thoughts: Target–Duration Bond Funds Technical Appendix Acronyms Bibliographic Notes About the Author Acknowledgments About the Companion Website Index

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.