We investigate pricing relations and the potential for arbitrage in the U.S. Treasury STRIPS market, stressing the importance of reconciling quoted Treasury data with actual market pricing conventions. We document that stripping and reconstitution profits in the STRIPS market are fleeting and rarely economically significant; that matched-maturity principal and coupon STRIPS generally have different prices due, at least in part, to richness or cheapness in the underlying note or bond; and that apparent negative forward rates in the STRIPS market are concentrated in certain long-maturity STRIPS that do not actually exist at the time.
This dissertation consists of three essays that investigate pricing issues in the U.S. Treasury market. The first essay, "On the Performance of Affine Term Structure Models: Evidence from the U.S. Treasury STRIPS Market," tests three popular continuous-time term structure models that are special cases of the one-factor affine class of stochastic factor models, and finds that, in certain specifications, this class of models fits observed prices and yields within the bid-ask spread. The second essay, "Negative Option Values are Possible: The Impact of Treasury Bond Futures on the Cash U.S. Treasury Market," describes in detail an episode of anomalous pricing in the cash Treasury market where negative implied option values were observed, and traces the source of the mispricing to distortions caused by the design of the CBT Treasury bond futures contract. The final essay, "Pricing Efficiency in the U.S. Treasury STRIPS Market," investigates the pricing relation between strippable cash Treasury notes and bonds and their component STRIPS portfolios, and finds that, contrary to previous research, these two markets are extremely well-integrated and any pricing discrepancies between the two are small and fleeting. The overall conclusion to be drawn from this dissertation is that all segments of the U.S. Treasury market are well-integrated; as a result, pricing discrepancies or innovations in one sector of the market can often be detected with relative ease using prices from one of the other markets.
Bringing together 20 papers written by, and for, practitioners in the US treasury, this text on fixed income analysis, focuses on applicable techniques, and presents quantitative methodologies for the analysis of fixed income securities.
Floating-Rate Securities is the only complete resource on "floaters" that fills the information void surrounding these complex securities. It explains the basics of floating rate securities, how to value them, techniques to compute spread measures for relative value analysis, and much more.
Fixed income practitioners need to understand the conceptual frameworks of their field; to master its quantitative tool-kit; and to be well-versed in its cash-flow and pricing conventions. Fixed Income Securities, Third Edition by Bruce Tuckman and Angel Serrat is designed to balance these three objectives. The book presents theory without unnecessary abstraction; quantitative techniques with a minimum of mathematics; and conventions at a useful level of detail. The book begins with an overview of global fixed income markets and continues with the fundamentals, namely, arbitrage pricing, interest rates, risk metrics, and term structure models to price contingent claims. Subsequent chapters cover individual markets and securities: repo, rate and bond forwards and futures, interest rate and basis swaps, credit markets, fixed income options, and mortgage-backed-securities. Fixed Income Securities, Third Edition is full of examples, applications, and case studies. Practically every quantitative concept is illustrated through real market data. This practice-oriented approach makes the book particularly useful for the working professional. This third edition is a considerable revision and expansion of the second. Most examples have been updated. The chapters on fixed income options and mortgage-backed securities have been considerably expanded to include a broader range of securities and valuation methodologies. Also, three new chapters have been added: the global overview of fixed income markets; a chapter on corporate bonds and credit default swaps; and a chapter on discounting with bases, which is the foundation for the relatively recent practice of discounting swap cash flows with curves based on money market rates.
Fixed Income Mathematics is an easy-to-understand introduction to the mathematics of common fixed income instruments. This book offers explanations, exercises, and examples without demanding sophisticated mathematics from the reader. Not only does the author use his business and teaching experience to highlight the fundamentals of investment and management decision-making, but he also offers questions and exercises that suggest the applicability of fixed income mathematics. Written for the reader with a general mathematics background, this self-teaching book is suffused with examples that also make it a handy reference guide. It should serve as a gateway to financial mathematics and to increased competence in business analysis. International comparisons are used to illustrate how interest is compounded. This text will be a valuable resource for professional insurance and other actuarials who invest in bonds and who are concerned with inflation, asset-liability management, the time value of money, interest rates, rates of return, risk, and investment income. It will also appeal to MBA students and anyone seeking a general introduction or overview of the subject. * An easy-to-understand introduction to the mathematics of common fixed income instruments * Offers students explanations, exercises, and examples without demanding sophisticated mathematics * Uses international comparisons to illustrate how interest is compounded
This collection of original articles—8 years in the making—shines a bright light on recent advances in financial econometrics. From a survey of mathematical and statistical tools for understanding nonlinear Markov processes to an exploration of the time-series evolution of the risk-return tradeoff for stock market investment, noted scholars Yacine Aït-Sahalia and Lars Peter Hansen benchmark the current state of knowledge while contributors build a framework for its growth. Whether in the presence of statistical uncertainty or the proven advantages and limitations of value at risk models, readers will discover that they can set few constraints on the value of this long-awaited volume. Presents a broad survey of current research—from local characterizations of the Markov process dynamics to financial market trading activity Contributors include Nobel Laureate Robert Engle and leading econometricians Offers a clarity of method and explanation unavailable in other financial econometrics collections
