- A
- Accrued interest, 50, 60–63
- Credit default swaps (CDS), 369
- Forward contracts, 251–254
- Futures contracts, 260, 263
- Mortgages, 425–426
- Across‐the‐Curve Credit Spread Index (AXI), 295
- American Interbank Offered Rate (Ameribor), 290, 295
- Arbitrage Pricing, 49, 55–57, 177–190, 194
- Credit default swaps (CDS), 374–376
- Forward contracts, 252‐255, 425
- Futures contracts, final settlement price, 264–265, 438
- Asset‐backed securities (ABS), 4, 39, 234
- Asset managers, 37, 43, 46–47, 79
- Corporate debt and credit default swaps (CDS), 349, 350–351, 365
- Duration vs. DV01, 113
- Hedging, 135, 145–146 fn. 1
- Interest rate swaps (IRS), 321–322, 329
- Profit and loss attribution, 79
- Asset swaps and asset swap spread, 94, 329, 357–359, 376
- Auto loans, 16–17
- B
- Banks, 1, 13–14, 18–20, 263, 348–349, 354
- Collateralized loan obligations (CLOs), 350
- Europe, 33–34, 365, 376
- Federal Reserve and monetary policy, 25–32
- Fed funds, 302–303
- Interest rate swaps (IRS), 321–322, 325, 332–333, 344–345
- Japan, 36
- Negative rates, 32–33
- Money market funds, 21–22
- Mortgages, 396–400, 420–421
- Regulation, 41–43, 242–243
- Repo, 226, 233, 235–237
- Short‐term rates and the transition from LIBOR, 289–295
- Barbell vs. bullet, 127–134
- Basis point, 7 fn. 4, 89
- Basis swaps and basis swap spreads, 344–346
- Black‐Scholes‐Merton (BSM) pricing model, 194–195, 433–434, 437, 440–441, 447 fn. 5, 448–450
- Bloomberg Short‐Term Bank Yield Index (BSBY), 290, 295
- Bond spread, 79, 90–94, 100, 111, 352, 360–361, 356–357
- Butterfly, 161, 173
- C
- Callable bonds, see Options/Embedded Call Options
- Caps, see Options/Caps and floors
- Carry, 97–98, 256, 270–271, 279, 281, 286, 424–425
- Carry‐roll‐down, 94, 97–100, 193
- Cash carry, 97–100, 255–256, 270 fn. 7
- Cash settlement, 296, 362, 379–380, 383–384, 448
- Central limit order book (CLOB), 38, 40
- Century bond, 104
- Cheapest‐to‐deliver (CTD), see Delivery option and the cheapest‐to‐deliver (CTD)
- China, 1–2, 9, 335 fn. 11, 249–250, 362
- Clean price, 60
- Clearing and central counterparties (CCPs), 339–344
- Credit default swaps (CDS), 367 fn. 14
- Interest rate swaps (IRS), 319–320, 322, 328, 336–339
- Repo, 231–232, 245
- Short‐term rates and their derivatives, 292, 294, 297 fn. 6
- Collateralized loan obligations (CLOs), 349–351, 430 fn. 18
- Collateralized‐to‐market (CTM), 263 fn. 5, 335–337
- Collateral swap, 230
- Compounding
- Interest rates, 65–71
- Hazard rates, 317–318, 367–368
- Prepayment rates, 409–410
- Constant‐maturity Treasury (CMT) swap, 188–191
- Consumer credit, 5 fn. 1, 13, 15–17, 19
- Continuous compounding, 68
- Conversion factor, see Note and bond futures
- Convexity, 106, 109, 113–119, 126–134, 219–221
- Bond and note futures, 277–278
- Mortgages, 417, 421–423
- Negative, 130, 208, 278, 417, 421–423, 437
- Shape of the term structure, 198–204, 208–209
- Corporate debt, 5, 12–13, 18, 39, 41–43, 63, 67, 104, 234, 347–361
- Credit default swaps (CDS)
- CDS‐bond basis and basis trades, 374–377
- CDS‐equivalent bond spread, 371–374
- Comparisons with corporate bonds, 363–365, 374–375
- Credit risk premium, 360–361
- Credit spreads, 91, 97 fn. 6, 356–360
- Default rates, recovery rates, and credit losses, 353–355
- Exchange‐traded funds (ETFs), 44–46
- Hazard‐adjusted duration and DV01, 377–378
- Hedging future issuance, 330–332
- Market making, 109–111
- Negative rates, 32 fn. 27
- Pension funds, 128, 329–330
- Repurchase agreements or repo, 225 fn. 2, 226, 230, 234
- Spread duration and DV01, 378–379
- Synthetic floating‐rate debt, 333
- Counterparty credit risk, 319, 334–339, 342
- Coupon effect, 86–89
- COVID pandemic and economic shutdowns or March 2020, 9, 12, 16–17, 23–24, 41 fn. 37
- Credit risk, 354–355, 436–437
- Europe and Japan, 35–37, 363, 377
- Exchange‐traded funds (ETFs), 45–46
- Monetary policy, 28, 31, 305
- Mortgages and Mortgage‐backed securities (MBS), 399, 416, 431
- Repo, 237, 239 fn. 8, 243
- Treasury futures basis trades, 281–287
- Credit default swaps (CDS), 4, 347, 361–394
- Bond basis and basis trades, 374–377
- Equivalent bond spread, 371–374
- Opportunistic strategies, 384–386
- Settlement auctions, 379–384
- Upfront amount, 362, 366–371
- Uses, 363–366
- Credit ratings, 347–348, 353–355, 360–361
- Credit value adjustment (CVA), 335
- Cross‐currency basis swap, 344, 345 fn. 19
- Curve building, 145–146, 306–308
- Curve risk, 94, 136–137, 145, 149–150, 161, 269, 332
- CV01, 146–147
- D
- Daily settlement, 249
- Counterparty risk, 261 fn. 3
- Futures options, 438–440
- Note and bond futures, 260–263, 273, 286
- Rate futures, 297, 304, 308–309, 311–312, 314–317
- Day‐count conventions, 60, 63, 69
- Dealers, 3, 14, 37–38, 40–44, 47–48, 292
- Primary dealers, 31, 42–43
- Repo, 223, 226, 229–230, 232–233, 240
- Swaps, 320–322, 330, 335
- Delivery option and the cheapest‐to‐deliver (CTD)
- Credit default swaps (CDS), 362, 380, 385–386
- Mortgage TBAs, 418–420
- Note and bond futures, 250, 264–286, 441
- Delivery versus payment (DVP), 231–232, 235
- Derivatives, 3–4,
- Arbitrage pricing, 179, 182, 184, 188, 194–195
- Corporate debt and credit default swaps (CDS), 374 fn. 19, 379–380
- Interest rate swaps (IRS), 319, 334–335, 338 fn. 14
- Mortgages and mortgage‐backed securities (MBS), 424
- Short‐term rates, 289–292, 294
- Dirty price, 60
- Discount factors, 49, 51–54, 57–59
- Flat‐forward‐rate curve, 307–308
- Floating leg of an interest rate swap (IRS), 325
- Option pricing, 441
- Swap, spot, and forward rates, 68, 71–75
- Dodd‐Frank Act, 23 fn. 16, 319, 338–339
- Duration, 106, 112–113, 115–117, 119–126, 210
- Barbell vs. bullet, 127–134
- Callable bonds, 434, 436–438
- Decomposition of forward rates, 201–204
- Futures cheapest‐to‐deliver (CTD), 268–269, 274–276
- Hazard‐adjusted, 377–378
- Key‐rate, 136–145
- Macaulay vs. Modified, 120, 120 fn. 1
- Mortgages and mortgage‐backed securities, 416–417, 422, 427–428
- Option‐adjusted, 438
- Duration times spread (DTS), 379
- DV01, 106–111, 113–114, 117–126
- Callable bond, 436–438
- Forward‐bucket, 147–150
- Forward contract, 257–258
- Futures, 249–250, 277–278, 441
- Hazard‐adjusted, 377–378
- Key‐rate, 136–145
- Option‐adjusted, 438
- Partial, 145–147
- Swaps, 320, 326–327, 329
- E
- Electronification, 40–41, 43–45, 47
- End‐of‐month option, 259, 279–281
- Entity‐netted notionals (ENNs), 321–322
- Environmental, social, and governance debt (ESG), 36 fn. 34
- Euro Interbank Offered Rate (Euribor), 289–292, 294
- Basis swaps, 344–346
- Forward rate agreements (FRAs) and futures, 312–318
- Futures options, 438–440
- Principal components of swap rates, 172–173
- Swaps, 319, 323–326, 330
- Euro Overnight Index Average (EONIA), 290–291
- European Central Bank (ECB), 33–37, 172
- European sovereign debt crisis, 243–247, 330, 363, 376–377
- MF Global repo‐to‐maturity (RTM) trades, 243–247
- Euro short‐term rate (ESTER), 290–291, 294, 343–346
- Eurozone debt and derivatives, 1–4, 35–36, 41
- Credit default swaps, 361 fn. 12, 363–366, 368 fn. 15, 376–377, 384, 386
- Interest rate swaps (IRS), 343
- Note and bond futures, 250
- Options, 448, 450
- Short‐term rates, 289–291, 294
- Spreads, 89, 91
- Exchange‐traded funds (ETFs), 14, 37, 43–46
- Expectations hypothesis, 96, 204
- F
- Failing to deliver, 239 fn. 8
- Federal Home Loan Mortgage Corporation (Freddie Mac or FHLMC), see Government‐sponsored enterprises (GSEs)
- Federal National Mortgage Association (Fannie Mae or FNMA), see Government‐sponsored enterprises (GSEs)
- Federal Reserve, 14–15, 19, 42 fn. 38, 170, 172, 213–214, 217–218, 236–237
- Balance sheet, 27–29
- COVID pandemic and economic shutdowns, 24, 243, 286
- Emergency facilities, 22, 23 fn. 16
- Federal Open Market Committee (FOMC) meetings, 198, 289, 301–302, 304–308
- Interest on excess reserves (IOER), 28 fn. 22
- Interest on reserve balances (IORB), 28–32
- Monetary policy, 24–32, 37, 303
- Open market operations, 26
- Quantitative easing, 26–28, 31–32
- Repo and reverse repo (RRP) facility, 26–31, 223, 233
- Fed funds, 26, 30, 290, 292, 302–303
- Effective fed funds rate (EFFR), 235–237, 303–304, 344
- Futures, 289, 302–308, 317
- Target rate, 28–31, 301–304
- Extracted from futures, 304–308
- Term structure models, 213–214, 217–218
- Fellow customer risk, 341–342 fn. 17
- FICO, 399–400, 410, 420
- Financial crisis of 2007–2009, 1, 9, 12, 16–17, 22–24, 290, 391
- Corporate debt and credit defaults swaps (CDS), 354, 363, 366, 376, 387
- Government‐sponsored entities (GSEs), mortgages, and mortgage‐backed securities
- (MBS), 13, 397, 404, 406
- Monetary policy and fed funds, 26–30, 34, 170 fn. 6, 303, 305
- Regulation, 41, 335, 338
- Repo, 228 fn. 4, 237, 241–242
- Fixed Income Clearing Corporation (FICC), 232
- Flash events, 47–48
- Flat forward rates, 307–308
- Flat price, see Accrued interest
- Flattening, 136–137, 150, 161, 269, 392
- Floors, see Options/Caps and floors
- Forward‐bucket '01s, 146–150
- Forward contracts and forward prices, 249–256, 261 fn. 3
- Interest rate sensitivity, 257–258
- Forward drop, 255–256, 424–425
- Forward rate agreement (FRA), 3, 312–314, 319–321
- Forward rates, 72, 73, 74–77, 93–94
- Determination and decomposition, 197–204
- Flat, from fed fund futures, 305–308
- Forward bond yield, 256–257
- Forward swap rate, 330–331
- Gauss+ model, 213–214, 216–221
- Key‐rate and forward‐bucket '01s, 140, 146–150
- Realized forwards and P&L attribution, 94–100
- Vasicek model, 206, 208–209
- Spreads, 90–91
- Funding risk, see Liquidity (funding) risk
- Futures‐forward difference, 261–263, 316–318
- France, 2, 9, 35, 50, 245, 376–377
- Full price, see Accrued interest
- Funding value adjustment (FVA), 330 fn. 7
- Futures, see Short‐Term Rate Futures or Note and Bond Futures
- Futures Commission Merchant (FCM), 243, 341–342 fn. 17
- G
- Gauss+ model, 135, 177, 210–222
- Germany 2, 9, 35, 50, 89, 91, 244, 362, 376–377
- Government National Mortgage Association (Ginnie Mae or GNMA), 396–400
- Government‐sponsored enterprises (GSEs), 13
- Balance sheet consolidation of mortgage‐backed securities (MBS), 12 fn. 8
- Credit risk transfer (CRT) securities, 428–431
- Debt, 5, 13–14
- Average daily volume (ADV), 39
- Federal Home Loan Mortgage Corporation (Freddie Mac or FHLMC), 22, 387, 396–400, 427
- Federal National Mortgage Association (Fannie Mae or FNMA), 22, 387, 396–400, 427
- Mortgage‐backed securities (MBS), 26, 396–400, 417–418
- Repo, 233–234
- Greece, 9, 35, 244, 289 fn. 1, 329–330, 362, 376
- Green bonds, 36 fn. 34
- Gross market value, 326
- H
- Haircut, see Margin
- Half‐life, 207, 216
- Hedge funds, 21
- Basis trades, 282, 285–286
- Collateralized loan obligations, 349–350
- Credit risk transfer (CRT) securities, 431
- Hedging, 103, 135, 145–146 fn. 1
- Interest rate swaps (IRS), 321–322, 335,
- Leverage, 81–82, 241
- London Whale, 393–394
- Opportunistic credit default swap (CDS) strategies, 385
- Short financing, 229–230
- Hedging, 41, 103–104, 135–136
- Barbell vs. bullet, 127–134
- Basis swaps, 344–345
- Black‐Scholes‐Merton (BSM), 195, 433, 436
- Central counterparty (CCP) default management, 337–338
- Credit default swaps (CDS), 364–366
- Convexity, 117–119, 204
- DV01, 109–111
- Forward‐bucket '01s, 147–150
- Interest rate swaps (IRS), 327–333
- Key rates, 137–138, 141–145
- London Whale, 387, 391–392
- MF Global, 245
- Mortgages and mortgage‐backed securities, 400, 421–424
- Note and bond futures, 249, 258, 261–263, 273, 279–281
- Partial '01s and PV01, 145–147
- Principal components, 172–175
- Regression, 153–164, 166–167
- Short‐term rate forwards and futures, 289, 294–302, 304, 306–316
- Single‐factor, 126–127, 171
- Term structure models, 177, 193, 206, 210, 218, 221
- High‐quality market‐weighted (HQM) curve, 104–106, 127–132, 140, 142, 144
- Home equity loans, 16–17, 398, 398–399 fn. 3
- Households, 13–17
- I
- Indenture, 241, 351
- Initial margin, see Margin
- Insurance companies, 13–16, 20–21, 82
- Asset‐liability management, 135–136
- Collateral swaps, 230
- Corporate debt and collateralized loan obligations (CLOs), 349–350
- Credit risk transfer (CRT) securities, 428 fn. 17
- Interest rate swaps (IRS), 321–322, 338
- Replication synthetic asset transactions (RSATs), 365
- Interest rate futures, see Short‐term rate futures
- Interest rate swaps (IRS), 68–73, 76–77, 319–346
- Basis swaps, 344–346
- Cash flows and analytics, 322–329
- DV01, 326–327
- Floating leg, 324–325
- Net present value, 326
- Overnight index swap (OIS) vs. fixed‐for‐floating, 319–320, 323–324
- Unwinding risk positions, 327–329
- Clearing and central counterparties, 339–344
- Counterparty credit risk, 324–335
- Market agreed coupon (MAC), 328
- Market size and participants, 320–322
- Uses, 329–333
- Bank loans, 332–333
- Greece hedges floating‐rate debt, 330
- Hedging future debt issuance, 330–332
- Pension liabilities, 329–330
- Synthetic floating‐rate debt, 333
- Invoice price, see Accrued interest
- Italy, 2, 35, 50, 89
- Credit default swaps (CDS), 362, 365, 376–377
- MF Global's repo‐to‐maturity (RTM) trades, 244, 247
- Ito's lemma, 201
- J
- Japan, 1–3, 9, 33, 50, 237
- Bank of Japan (BOJ), 33, 36–37
- Government bond futures, 249–250
- Interest rate swaps (IRS), 343
- London Interbank Offered Rate (LIBOR), 290, 292, 294
- Tokyo Interbank Offered Rate (TIBOR), 290–292, 294
- Euroyen TIBOR, 291
- JPY TIBOR, 291
- Tokyo Overnight Average Rate (TONAR), 36, 69–70, 290–292, 294
- Jensen's inequality, 199–200
- K
- Key‐rate DV01 and duration, 136–145, 150–151
- L
- Law of One Price, 49, 53–57, 59, 92, 180–181
- Legally separated operationally comingled (LSOC), 341 fn. 17
- Leverage ratio, 30–31, 242–243
- Liquidity coverage ratio (LCR), 242
- Liquidity (funding) risk, 7, 343, 348
- Banks, 18–19, 25, 30, 332–333, 344, 349, 391
- Credit default swap (CDS)‐bond basis, 374–377
- Liquidity management and current regulatory issues, 241–243
- MF Global's repo‐to‐maturity (RTM) trades, 244–247
- Money market funds, 22–24
- Repo, 226, 230, 234, 236–237, 297
- Treasury futures basis trades, 281–287
- Liquidity (trading), 37–48, 94, 109, 145, 294, 316
- Corporate bonds and credit default swaps (CDS), 365, 367, 379, 392–393
- Margin, 337–338, 341
- Mortgages and mortgage‐backed securities (MBS), 396, 398, 418, 422, 424, 427
- Treasury bonds and futures, 240, 249–250, 266, 268, 278–279, 285
- Loan‐to‐value ratio (LTV), 395, 399–400, 405–406, 408, 410, 415
- Lockout, 293
- London Clearing House (LCH), 245–246, 343
- London Interbank Offered Rate (LIBOR), 70, 91, 312, 429
- Caps, floor, and swaptions, 433, 442–446
- Corporate debt and credit default swaps (CDS), 348, 350, 356–360, 369
- Principal component analysis, 167–175
- Transition from, 65, 223, 234, 289–295, 319, 339, 344
- London Whale, 363, 387–394
- Lookback, 293–294, 404
- M
- Maintenance margin, see Margin
- Make‐whole call option, 352
- Margin
- Basis trades in March 2020, 285–286
- Interest rate swaps (IRS) initial and variation margin, 326, 335–339, 341–343
- Collateralized‐to‐market (CTM), 263 fn. 5, 335–337
- Settled‐to‐market (STM), 263 fn. 5, 336–337
- MF Global repo‐to‐maturity trades, 245–246
- Note and bond futures, 261, 263
- Repo haircuts and variation margin, 224–225, 227–228, 231
- Margin period of risk (MPOR), 337–338
- Margin procyclicality, 343
- Market depth, 38, 47–48
- Market making, 37–38, 41–43, 47, 109, 226–228, 243
- Mark‐to‐market, 263
- Monetary policy, see Federal Reserve/Monetary policy
- Money market funds, 14, 16, 20 fn. 12, 21–24, 29–31
- Hedging with short‐term rate futures, 297–302
- Repo, 223, 226, 232–233
- Mortgages and mortgage‐backed securities (MBS), 4–5, 12, 15–19, 20 fn. 12, 26–28, 31, 39, 67, 138, 322, 395–431
- Adjustable‐rate mortgage (ARM), 403–404
- Amortization table, 401–403
- Collateralized mortgage obligations (CMOs), 427–428
- Credit risk transfer (CRT) securities, 398, 428–431
- Dollar rolls, 424–427
- Fixed‐rate mortgage, 401–403
- Interest‐only (IO) strips, 428
- Market in the United States, 396–400
- Negative convexity, 417, 421–423
- Origination and origination channels, 399–400, 421
- Planned amortization classes (PACs), 427
- Pools, 396–397, 406–415
- Prepayments and the prepayment option, 395, 405–406, 411–415
- Burnout, 413–414
- Conditional or constant prepayment rate (CPR), 409
- Incentive, 411–412
- Media effect, 414
- Refinancing, 119, 395, 405–406
- S‐curve, 411–412
- Single monthly mortality (SMM) rate, 409
- Turnover, 406, 414–415
- Pricing, spreads, and duration, 415–417
- Principal‐only (PO) strips, 428
- Real estate mortgage investment conduits (REMICs), 427
- Repo, 225 fn. 2, 233–234, 235, 237, 242, 424–427
- Risk factors and hedging, 421–424
- Sequential pay classes (SEQs), 427–428
- Servicers and servicing rights, 400, 406–407, 411, 420–424, 428
- Specified pools, 419–421
- Targeted amortization classes (TACs), 428
- TBAs, 398, 418–419
- Uniform MBS (UMBS), 398, 418–420, 426
- Municipalities and Municipal Securities, 5, 9–15, 22, 39–40, 147–150, 226, 233–234, 347
- N
- Negative rates, 32–33, 36, 52 fn. 3, 76
- Euribor futures, 312–315
- Gauss+ model, 217–218
- SABR model, 450–451
- Special repo rates, 239 fn. 8
- Net stable funding ratio (NSFR), 242
- Nonfinancial business, 1–2, 4, 12–15, 18
- Floating loans, set in arrears, 293
- Interest rate swaps (IRS), 321–322, 338
- Repo, 226
- Note and Bond Futures, 249–287
- Basis trades in March 2020, 281–287
- Cost of delivery and the final settlement price, 263–266
- Daily settlement, 260–263
- Forward bond yield, 256–257
- Forward contracts and forward prices, 249, 250–256
- Gross and net basis and basis trades, 262, 269–273
- Implied repo rates, 273–274, 282–284
- Interest rate sensitivity of a forward contract, 257–258
- Mechanics, 258–261
- Motivations for a delivery basket and conversion factors, 266–268
- Price and the quality option before expiration, 274–276
- Quality option at expiration, 268–269
- Timing, end‐of‐month, and wild‐card options, 279–281
- Notional amount, 3–4
- Credit default swaps, 361, 365, 388–390, 391, 393
- Interest rate swaps (IRS), 68, 70–71, 319–322, 324–325, 328
- Note and bond futures, 280
- Options, 321 fn. 2, 442–443, 446–447
- Short‐term rate futures, 313, 316
- Notional coupon, 267–268, 278–279, 441
- Novation, 330
- O
- Option‐adjusted duration (OAD), 408, 417, 421, 438
- Option‐adjusted spread (OAS), 90 fn. 4, 177, 190–193
- Callable bonds, 437–438
- Credit spreads, 356–357
- Mortgages and mortgage‐backed securities (MBS), 408, 415–416
- Options, 433–451
- Bond futures options, 440–442
- Caplet, 442–443
- Caps and floors, 320, 442–445
- Embedded call options, 433–438
- Equity‐ or traditional‐style options, 440
- Euribor futures options, 438–440
- Floorlet, 445
- Futures‐style options, 438
- SABR and shifted‐SABR models, 450–451
- Shifted lognormal model, 450
- Skew, 447–451
- Stochastic volatility models, 450–451
- Swaptions, 319–321, 422–424, 433, 445–451
- Volatility cube, 447–448, 451
- Over‐the‐counter (OTC), 243, 313, 315, 338, 445
- P
- Paid in arrears, 293–294
- Parallel shift, 103–105, 119, 126–132, 136–137, 140–141, 149, 154, 157, 169, 174, 214, 269, 275–278, 301, 379
- Par rates, 71, 75–77
- Partial '01s, 145–147, 150, 327
- Payment delay, 293, 324, 406 fn. 8.
- Pension funds, 11, 13–16, 20–21, 103–104, 119, 230, 350
- Barbell vs. bullet, 127–134
- Key rate hedging, 139, 142–145
- Interest rate swaps (IRS), 321–322, 329–330, 338
- Physical settlement, 296, 334 fn. 10, 362, 379–382, 384, 424, 438 fn. 2, 448
- Portfolio volatility, 150–151
- Present value, 51
- Principal component analysis (PCA), 153, 167–175, 177
- Principal trading firms (PTFs), 37, 40, 43–44, 47–48
- Profit and loss (P&L) attribution, 79–80, 94–101, 191–193
- PV01, 145–147, 327
- R
- Realized forwards, 94–96, 97, 100, 204
- Regression hedging, 153–167
- Level versus change regressions, 164–165
- Out‐of‐sample analysis, 160–161, 163–164
- Profit and loss (P&L) and P&L volatility, 159–160, 163–164
- Reverse regressions, 165–167
- Risk weights, 159, 163
- Single variable, 154–161
- Two‐variable, 161–164
- Replicating portfolio, 55–57, 180–183, 188, 194
- Replication synthetic asset transactions (RSATs), 365
- Repo, see Repurchase Agreements
- Repurchase Agreements or Repo, 223–247
- General collateral (GC), 230, 235–237
- General collateral finance (GCF), 231–233
- Haircuts and variation margin, 224–225, 227–228, 231
- Liquidity management and current regulatory issues, 241–243
- Market structure and size, 231–234
- Matched books, 233
- MF Global's repo‐to‐maturity trades, 243–247
- Open, 228–229
- Quarter‐end and year‐end, 236–237
- Repo‐to‐maturity (RTM), 243
- Reverse, 229–230
- Secured overnight financing rate (SOFR), 234–235
- September 2019, 28, 30–31, 237, 243
- Special collateral, 230, 238–241
- Sponsored, 232
- Tri‐Party, 231–234
- Uses, 226–230
- Collateral swap, 230
- Investment, 226
- Long financing, 226–229
- Short financing, 229–230
- Request‐for‐quotes (RFQs), 40
- Return, 79–82
- Reverse repo (RRP) facility, see Federal Reserve/Repo and reverse repo (RRP) facility
- Right‐way risk, 225
- Risk‐neutral pricing
- Credit default swaps (CDS), 371
- Mortgages and mortgage‐backed securities (MBS), 415
- Options, 437–438, 440–441
- Term structure models, 182–192, 202, 204, 205–206, 213
- Risk premium, see Term structure/Risk premium
- Risk premium hypothesis, 96, 204
- Risky DV01, 379
- Roll‐down, 97–98
- S
- Safe harbor from bankruptcy code, 224–225, 334–336
- Secured overnight financing rate (SOFR), 65
- Basis swaps, 344–345
- Basis trades in March 2020, 282–283, 286–287
- Definition and publication, 223, 234–235, 296 fn. 5
- Interest rate swaps (IRS), 68–72, 74–77, 167 fn. 5, 319–320, 322–327, 339
- Short‐term rate futures, 289–290, 292–304, 308–311, 315–318
- Spreads 91, 92–94, 348
- Set in advance or set in arrears, 293–294
- Settled‐to‐market (STM), 263 fn. 5, 336–337
- Sharpe ratio, 203
- Short sales, 55
- Corporate debt and credit default swaps (CDS), 363, 365, 375, 377
- Mortgage‐backed securities (MBS), 424, 427
- Repo short financing, 223, 229–230
- Squeeze, 266
- Treasuries, 238, 240, 375, 377,
- Short‐term rate futures, 289, 295–318
- Euribor forward rate agreements (FRAs) and futures, 312–318
- Fed fund futures, 302–308, 317–318
- One‐month SOFR futures, 295–302, 317–318
- Stacking, 301–302
- Three‐month SOFR futures, 308–312, 316–318
- Simple interest, 65–67
- Spain, 2, 4, 35, 244, 362, 376,
- Spot, 73
- Spot rates, 72–77, 87, 307–308
- Spread duration and DV01, 378–379
- Standard initial margin model (SIMM), 337
- Steepening, 136–137, 161, 221, 269
- Sterling Overnight Interbank Average (SONIA), see United Kingdom/Sterling Overnight Interbank Average (SONIA)
- Student loans, 16–17
- Swap data repositories (SDR), 338
- Swaps execution facility (SEF), 338
- Swaptions, see Options/Swaptions
- Swiss average rate overnight (SARON), see Switzerland/Swiss average rate overnight (SARON)
- Switzerland, 3, 9
- London Interbank Offered Rate (LIBOR), 290–291
- Swiss average rate overnight (SARON), 70, 76–77, 289–291, 294
- T
- Tail, 262–263, 273, 280 fn. 10, 285, 311–312, 315
- Tenor, 66
- Term structure, 69
- Concavity, 133–134
- Decomposition of forward rates, 201–204, 208–209, 219–222
- Expectations, 197–198, 207–209, 221–222
- Risk premium, 177, 197, 201–204, 206, 208–209, 219–221
- Volatility and Convexity, 198–200, 208–209, 219
- Term structure models, 177–222
- Arbitrage pricing, 179–182, 184–190
- Fixed income versus equity derivatives, 194–195
- Gauss+ model, 135, 177, 205, 208, 210–222
- Mean reversion, 205–208, 211–212, 214, 216, 219
- Rate and price trees, 177–179
- Nonrecombining, 184
- Recombining, 184
- Risk‐neutral pricing, 182–184
- Time step, 193–194
- Vasicek model, 205–210
- Term structure of volatility, 208, 210, 212, 214
- Timing option, 250, 259, 279–281
- Tokyo Interbank Offered Rate (TIBOR), see Japan/Tokyo Interbank Offered Rate (TIBOR)
- Tokyo Overnight Average Rate (TONAR), see Japan/Tokyo Overnight Average Rate (TONAR)
- Treasury debt, see U.S. Treasury debt
- Two‐curve pricing of interest rate swaps (IRS), 345–346
- U
- Unchanged term structure, 94–96
- United Kingdom, 1–4, 9, 50
- Government bond futures, 249–250
- Interest rate swaps (IRS), 343
- Principal components of swap rates, 172
- London Interbank Offered Rate (LIBOR), 290, 292, 294
- Sterling Overnight Interbank Average (SONIA), 69–70, 290–292, 294
- U.S. Government agencies, 13, 19, 39, 234, 397
- U.S. Treasury debt, 1–2, 5–9, 39
- Auctions, 7–8, 42, 238–240
- Bills, 5–8, 32, 138
- Coupon bonds, 5–6, 50–63
- Electronic trading, 40, 43–44
- Floating‐rate notes (FRNs), 6–8
- Nonmarketable, 5, 8–9
- Notes and bonds, 5–6, 50–63
- On‐the‐run (OTR), 8, 90, 136–138, 147, 238–241, 249–250
- Par value, 50
- Principal amount, 50
- Separate Trading of Registered Interest and Principal of Securities (STRIPS), 49, 57–60
- Spreads, high‐coupon, 92–94
- Treasury inflation protected securities (TIPS), 6–8
- V
- Variation margin, see Margin
- Collateralized‐to‐market (CTM), 335–337
- Settled‐to‐market (STM), 336–337
- Vasicek model, 177, 205–210, 211–212
- Volatility
- Convexity, 119, 134, 177, 198–202, 204
- Haircuts, initial margin (IM) and variation margin (VM), 234, 245, 249, 335, 341, 343
- Hedged and portfolio, 150–151, 159, 166–167
- Mortgages, 421–423
- Note and bond futures, 262, 272, 275–278, 281, 284–286
- Options, 194–195, 352, 416 fn. 10, 435–437, 440–451
- Principal components, 167, 170, 172
- Short‐term rates and their derivatives, 317
- Term structure models, 206–216,
- Volcker Rule, 41, 383
- W
- Wild‐card option, 259, 281
- Wrong‐way risk, 225
- Y
- Yield spread, 89–90, 356–357, 360, 376
- Yield to maturity, 79, 82–89
- Forward, 256–257
- Yield and relative value, 86–89
- Yield and return, 84–86
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