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Bond Math

Preface to the Second Edition Preface to the First Edition Money Market Interest Rates INTEREST RATES IN TEXTR00K THEORY MONEY MARKET ADD-ON RATES MONEY MARKET DISCOUNT RATES TWO CASH FLOWS, MANY MONEY MARKET RATES Add-On Rate, Actual/360 Add-On Rate, Actual/365 Add-On Rate, 30/360 Add-On Rate, Actual/370 Discount Rate, Actual/360 A HISTORY LESSON ON MONEY MARKET CERTIFICATES PERIODICITY CONVERSIONS TREASURY BILL AUCTION RESULTS THE FUTURE: HUURLY INTEREST RATES?CONCLUSION Zero-Coupon Bonds THE STORY OF TIGRS, CATS, LIONS, AND STRIPS YIELDS TO MATURITY ON ZERO-COUPON RONDS HORIZON YIELDS AND HOLDING-PERIOD RATES OF RETURN CHANGES IN BOND PRICES AND YIELDS CREDIT SPREADS AND THE IMPLIED PROBABILITY OF DEFAULT CONCLUSION 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 I IMPLIED PROBABILITY OF DEFAULT ON COUPON BONDS BOND PRICING BETWEEN COUPON DATES A REAL CORPORATE BOND CONCLUSION Bond Taxation BASIC BOND TAXATION MARKET DISCOUNT BONDS A REAL MARKET DISCOUNT CORPORATE ROND PREMIUM BONDS ORIGINAL ISSUE DISCOUNT BONDS MUNICIPAL BONDS CONCLUSION 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 Duration and Convexity YIELD DURATION AND CONVEXITY RELATIONSHIPS YIELD DURATION THE RELATIONSHIP BETWEEN YIELD DURATION AND MATURITY YIELD CONVEXITY BLOOMBERG YIELO BURATION ANB CONVEXITY CURVE DURATION AND CONVEXITY CONCLUSION 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 Interest Rate Swaps PRICING AN INTEREST RATE SWAP INTEREST RATE FORWARDS AND FDTDRES 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 Bond Portfolios BOND PORTFOLIO STATISTICS IN THEORY BOND PORTFOLIO STATISTICS IN PRACTICE A REAL BOND PORTFOLIO THOUGHTS ON BOND PORTFOLIO STATISTICS CONCLUSION 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 ROND FUNDS I Technical Appendix MONEY MARKET INTEREST RATES

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