Bond Pricing and Portfolio Analysis: Protecting Investors in the Long Run

  • 7h 6m
  • Olivier de La Grandville
  • The MIT Press
  • 2001

This comprehensive text makes accessible the most important methodological advances in bond evaluation of the past twenty years. With uncommon precision and a strong emphasis on the underlying economic fundamentals, de La Grandville presents a unified framework for understanding the basic tools of bond evaluation, including duration, convexity, immunization, and interest rate derivatives.

One of the book's most valuable contributions is its detailed demonstration of the Heath-Jarrow-Morton model of interest term structure and its applications to bond portfolio duration and immunization. Other innovative treatments include a discussion of the exact relationship between spot and forward rates of return, formulas for the expected value and variance of the long-term rate of return on bonds as functions of one-year estimates, the introduction of a new concept of duration based on the directional derivative, and a geometrical interpretation of a martingale probability construction.

Each chapter is followed by a series of questions, problem sets, and projects. Detailed answerss to all of them are provided at the end of the book. Although the treatment is thorough and rigorous, the exposition is intuitive throughout.

In this Book

  • A First Visit to Interest Rates and Bonds
  • An Arbitrage-Enforced Valuation Of Bonds
  • The Various Concepts of Rates of Return on Bonds: Yield to Maturity and Horizon Rate of Return
  • Duration—Definition, Main Properites, and Uses
  • Duration at Work—The Relative Bias in the T-Bond Futures Conversion Factor
  • Immunization—A First Approach
  • Convexity—Definition, Main Properties, and Uses
  • The Importance of Convexity in Bond Management
  • The Yield Curve And The Term Structure of Interest Rates
  • Immunizing Bond Portfolios Against Parallel Moves of the Spot Rate Structure
  • Continuous Spot and Forward Rates of Return, with Two Important Applications
  • Two Important Applications
  • Estimating The Long-Term Expected Rate of Return, Its Variance, and Probability Distribution
  • Introducing The Concept Of Directional Duration
  • A General Immunization Theorem, And Applications
  • Arbitrage Pricing in Discrete and Continuous Time
  • The Heath-Jarrow-Morton Model of Forward Interest Rates, Bond Prices, and Derivatives
  • The Heath-Jarrow-Morton Model at Work—Applications to Bond Immunization
  • By Way of Conclusion—Some Further Steps
  • Answers to Questions
  • Further Reading
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