Pricing Money : A Beginner's Guide to Money, Bonds, Futures, and Swaps

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Pricing Money : A Beginner's Guide to Money, Bonds, Futures, and Swaps

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  • 製本 Paperback:紙装版/ペーパーバック版/ページ数 176 p.
  • 言語 ENG
  • 商品コード 9780471487005
  • DDC分類 332.632

Full Description

Pricing Money provides a highly practical introduction to the principles of bonds and fixed income and is aimed at readers who have little prior knowledge.

The book is written in a style that is not overly mathematical or theoretical but takes a practical approach focusing on the aspects of pricing and trading fixed-income securities that are most relevant to the day-to-day activities of people working in the markets.

Starting at a basic level the author explains the concepts and principles behind fixed income in an informative way using every day examples that can be understood by the layman. It includes a listing of the terms used; the rules and conventions; the techniques for valuation and pricing and a description of the different roles within the industry. This book will be an excellent training tool for new recruits to the financial markets.

Contents

Preface xiii

Acknowledgements xv

Part 1: A Beginner's Toolkit 1

1 Money markets 3

What is money? 3

Why there is a money market? 4

Choosing a maturity 6

Repo 7

Central-bank money-market operations 9

Two money markets 10

The euro 12

Writing money 13

Settlement details 15

Summary 16

2 Government bonds 17

Introduction 17

The concept of yield 18

Example yield calculations 19

Coupon and yield 22

The yield curve 23

Primary dealers 24

Government bond markets 24

Repo as part of the government-bond market 26

Accrued interest 27

Strips 27

Other tradable government debt 29

Non-government debt 31

Rating agencies 32

Summary 33

3 Futures 35

The gold miner's problem 35

The gold miner's solution 36

Contract specification 37

Credit and margin 38

Cash settlement 39

Cash-settling other contracts 40

The fixings 41

The 3-month interest rate future 43

Price action 44

The strip and TED spreads 46

Arbitrage 47

Some trading jargon 48

Summary 50

4 Swaps 51

Introduction 51

An example 53

Asset swaps 55

A typical swap in detail 56

Credit risk in swaps 58

Trading jargon 59

Swaps and interest rate futures 60

Myth and reality 61

Summary 62

5 Options 63

Introduction 63

Puts and calls 63

What is the option worth? 65

Combinations 66

Underlyings 66

Embedded options 67

Implied volatility 68

Summary 69

6 Foreign exchange 71

The basic rationale 71

Size and conventions 72

Forwards 72

Shake the dice 73

Summary 75

7 Players 77

Governments 77

Pseudo-government issuers 78

Non-Financial corporations 79

Pension funds 79

Insurers 81

Mutual funds 82

Hedge funds 83

Commercial banks 83

Mortgage lenders 85

Central banks 86

Private investors 87

Summary 87

8 People 89

Introduction 89

Proprietary traders 89

Market makers 91

Brokers 92

Salespeople 93

Researchers 94

Back office and middle office 94

Investment bankers 94

Summary 95

9 Price action 97

Why do prices move? 97

Necessity never made a good bargain 99

Stability and leverage 100

Fixed-income prices 101

A stylised crash in fixed income 103

Forwards, zeros and par yields 104

Trading the crash 108

Market irrationality 109

Summary 110

Part 2: More detail 111

10 Swaps revisited 113

Introduction 113

Credit risk in swaps 113

Reducing the credit risk 114

Cross-currency basis swaps 116

The price of a basis swap 117

A cross-currency issue 118

Reducing credit risk in basis swaps 121

Forward rate agreements 122

Summary 122

11 Non-government issuance 125

Introduction 125

Bringing a deal to market 126

The syndicate 128

Book-building: taking orders 129

Pricing a swapped deal 130

Pricing an unswapped deal 131

Some legal details 132

Free to trade 134

An example issue 135

Opportunistic reopenings 136

Summary 137

12 Yield, duration, repo and forward bond prices 139

Measuring risk 139

Yields: compounding frequencies 140

Duration continued 142

Definition of DV 01 144

How coupon affects duration and DV 01 144

An example yield curve 145

A 3s10s flattener 147

A flattener generates cash 148

A forward flattener 148

What happens if nothing happens? 149

Weighting the forward flattener 150

A barbell 151

Carry and slide 152

Summary 153

13 Bond futures 155

Introduction 155

Specification 156

Delivery day 157

The delivery process 158

Cheapest to deliver: at par 159

Cheapest to deliver: far from par 160

CTD calculations before delivery 161

Delivery tail 162

Summary 163

14 Basic fixed-income arithmetic 165

The proportion of a year 165

Yield to price and price to yield 167

Semi to annual: halve and square 167

Forward yield 168

Forward asset swap 168

Summary 168

Index 169