Fixed Income Securities, 3rd EditionP1: TIX/XYZ P2: ABCJWBT539-fm JWBT539-Tuckman September 15, 2011 11: 42 Printer: Courier WestfordAdditional praise forFixed Income Securities: Tools for Today's Markets,3rd edition"The coverage of fixed income markets and instruments is even better than in pre-vious editions while the book retains the same clarity of exposition via extensive,carefully worked examples. An outstanding textbook that is extensively used bypractitioners is something special. This is indeed the standout text on fixed incomeStephen m. schaefer, Professor of Finance, London business schoolThis is a terrific reference text that combines a strong conceptual framework withreal-world pricing and hedging applications. It is a must-read for any serious investorin fixed income markets. oln-Terry Belton, Global Head of Fixed Income Research, JPMorganThis outstanding book achieves the perfect balance between presenting the founrational principles of fixed income markets and providing interesting and insightfulpractical applications. This classic is required reading for anyone interested in un-derstanding fixcd incomc markets-Francis Longstaff, Allstate Professor of Insurance and FinanceThe anderson School at UCLA"This is a grcat book. It covers the most current issues in fixcd incomc and reflectshe authors'deep understanding of the markets grounded in the theory of financeand many years of practical experience-Ardavan Nozari, Treasurer, Citigroup Global Markets Holding IncP1: TIX/XYZ P2: ABCJWBT539-fm JWBT539-Tuckman September 15, 2011 11: 42 Printer: Courier WestfordP1: TIX/XYZ P2: ABCJWBT539-fm JWBT539-Tuckman September 15, 2011 11: 42 Printer: Courier WestfordFixed incomeSecuritiesP1: TIX/XYZ P2: ABCJWBT539-fm JWBT539-Tuckman September 15, 2011 11: 42 Printer: Courier WestfordFounded in 1807, John Wiley sons is the oldest independent publishing company in the United States. 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Book topics range from portfolio managementto e-commerce, risk management, financial engineering valuation and financial instrument analysis, as well as much moreoralistofavailabletitlesvisitourWebsiteatwww.WileyFinance.comP1: TIX/XYZ P2: ABCJWBT539-fm JWBT539-Tuckman September 15, 2011 11: 42 Printer: Courier WestfordFixed IncomeSecuritiesTools for Today's MarketsThird editionBRUCE TUCKMANANGEL SERRATWILEYJohn wileyIons. nP1: TIX/XYZ P2: ABCJWBT539-fm JWBT539-Tuckman September 15, 2011 11: 42 Printer: Courier WestfordCopyright o 2012 by Bruce Tuckman and Angel Serrat. all rights reservedPublished by john Wiley Sons, InC, Hoboken, New JerseyPublished simultaneously in CanadaNo part of this publication may bc reproduced, stored in a rctricval systcm, or transmitted inany form or by any means, electronic, mechanical, photocopying, recording scanning, orotherwise, except as permitted under Section 107 or 108 of the 1976 United States CopyrightAct, without either the prior written permission of the Publisher, or authorization throughpayment of the appropriate per-copy fee to the Copyright Clearance Center, Inc, 222Rosewood Drive, Danvers, MA01923, (978)750-8400, fax(978)646-8600, or on the WebPermissions Department, John Wiley Sons, Inc, 111 River Street, Hoboken, NJ07030 catwww.copyright.comRequeststothePublisherforpermissionshouldbeaddressedtothe(201)748-6011,fax(201)748-6008,oronlineatwww.wiley.coim/go/pernissionsLimit of Liability/Disclaimer of Warranty: While the publisher and author have used theirbest cfforts in preparing this book, thcy makc no rcprcscntations or warranties with rcspcct tothe accuracy or completeness of the contents of this book and specifically disclaim any impliedwarranties of merchantability or fitness for a particular purpose. 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For more information about Wiley productsvisitourwebsiteatwww.wileycomLibrary of congress Cataloging-in-Publication dataTuckman, bruce.Fixed income securities: tools for today's markets /Bruce Tuckman, Angel Serrat. -3rd edp cm-(Wilcy finance scricsIncludes indeISBN 978-0-470-89169-8(hardback)ISBN978-0-47090403-9( paperback);ISBN978-1-118-13397-2ebk};SRN978-1-118-1398-9(ebk);SRN978-1-118-1399-6(cbk)1. Fixed-income securities. I Serrat, Angel. Il. TitleHG4650.T832012332.63′2044-dc232011037178Printed in the united states of america1098765432P1: TIX/XYZ P2: ABCJWBT539-fm JWBT539-Tuckman September 15, 2011 11: 42 Printer: Courier WestfordContentsPreface to the third editionAcknowledgmentsAn Overview of global fixed income marketsPART ONEThe Relative pricing of Securities with Fixed Cash FlowsCHAPTER 1Prices, Discount Factors, and ArbitrageCHAPTER 2Spot, Forward, and par RatesCHAPTER 3Returns Spreads, and yields05PART TWOMeasures of Interest Rate Risk and Hedging119CHAPTER 4One-Factor Risk Metrics and hedges123CHAPTER 5Multi-Factor Risk Metrics and HedgesCHAPTER 6Empirical Approaches to Risk Metrics and HedgingP1: TIX/XYZ P2: ABCJWBT539-fm JWBT539-Tuckman September 15, 2011 11: 42 Printer: Courier WestfordCONTENTSPART THREETerm structure Models201CHAPTERZThe science of term structure models207CHAPTER 8The Evolution of Short Rates and the shape of the Term structure229CHAPT:R 9The art of term structure Models: Drift251CHAPTER 10The Art of Term Structure Models: volatility and Distribution275CHAPTER 11The Gauss+ and LIBoR Market Models287PART FOURSelected Securities and Topics325CHAPTER 12Repurchase Agreements and Fnancing327CHAPTER 13Forwards and Futures: Preliminaries351CHAPTER 14Note and bond Futures373CHAPTER 1Short-Term Rates and their derivativesCHAPTER 16SwapsCHAPTER 17Arbitrage with Financing and Two-curve Discounting457CHAPTER 18Fixed Income Options483