9

17

 

Blackwell Publishing (Visit publisher website)

2005

English

 

 

 

Basic

 

 

Credit risk, market risk, fixed income fundamentals, term structure of interest rates, yield curves, segmented markets theory, theory of increasing liquidity premiums, preferred habitat theory, money substitute theory, pure expectations hypothesis, humpbacked yield curve, binomial term structure models, mean reverting term structure models

 

From the book - This chapter focuses on the reasons why interest rates differ by maturity, or term. A schedule of spot interest rates by maturity is called the term structure of interest rates. The term structure can be rising, flat, declining, or humped. The term structure is not directly observable, since no tax-free, defaultfree zero-coupon bonds exist. Analysts generally try to estimate the term structure from the yields for coupon-bearing bonds. A yield curve shows the relationship between interest rates and maturity for coupon-bearing bonds. The first part of the chapter focuses on historical patterns observed for the term structure. The second part of the chapter deals with traditional theories explaining the term structure of interest rates. Modern mathematical models of the term structure constitute the last part of the chapter.

 

9.1 Historical Patterns in Yield Curves
9.2 Segmented Markets Theory
9.3 Increasing Liquidity Premiums
9.4 Preferred Habitat
9.5 Money Substitute
9.6 Expectations Hypothesis
9.7 Combined Theory
9.8 Humpbacked Curves
9.9 Holding Period Returns
9.10 Modern Term Structure Models
9.11 Summary
9.12 Notes
9.13 Questions and Problems

 

If you are interested in purchasing the book, please click here.

 

This book provides an introduction to bond markets and bond derivatives for students as well as for executives in commercial businesses and financial institutions. It also:

Presents the essential elements of debt instruments in an intuitive manner;
Covers updated institutional material, new sections on callable bonds and the yield to call, convertible bonds, and methods for estimating and modern models of term structure of interest rates, as well as a comprehensive discussion of bonds in the European Economic Union;
Includes additional end-of-chapter questions, PowerPoint slides, and an Instructor`s text bank through the author`s website: http://bear.cba.ufl.edu/livingston