1

28

 

John Wiley & Sons, Inc. (Visit publisher website)

2007

English

 

 

 

Intermediate

 

 

Quantitative analysis, credit risk, fixed income fundamentals, discounting, yield, interest rate, future value, internal rate of return, bond valuation, Taylor expansion, duration, convexity, bond price derivatives, modified duration, Macaulay duration, effective duration, coupon curve duration, compounding, infinite series

 

*** Excerpt from book *** This chapter starts our coverage of quantitative analysis by discussing bond fundamentals. Section 1.1 reviews the concepts of discounting, present values, and future values. Section 1.2 then plunges into the price-yield relationship. It shows how the Taylor expansion rule can be used to relate movements in bond prices to those in yields. This Taylor expansion rule, however, covers much more than bonds. It is a building block of risk measurement methods based on local valuation, as we shall see later. Section 1.3 then presents an economic interpretation of duration and convexity. The reader should be forewarned that this chapter, like many others in this handbook, is rather compact. This chapter provides a quick review of bond fundamentals, with particular attention to risk measurement applications. By the end of this chapter, however, the reader should be able to answer advanced FRM questions on bond mathematics.

 

Bond Fundamentals
1.1 Discounting, Present, and Future Value
1.2 Price-Yield Relationship
1.2.1 Valuation
1.2.2 Taylor Expansion
1.3 Bond Price Derivatives
1.3.1 Interpreting Duration and Convexity
1.3.2 Portfolio Duration and Convexity
1.4 Important Formulas
1.5 Answers to Chapter Examples
Appendix: Applications of Infinite Series

 

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

 

Risk professionals looking to earn the Financial Risk Management (FRM®) certification, corporate training programs, professors, and graduate students all rely on the Financial Risk Manager Handbook for the most comprehensive and up-to-date information on financial risk management.

Filled with in-depth insight and practical advice, the Financial Risk Manager Handbook is the core text for risk management training programs worldwide. Presented in a clear and consistent fashion, this completely updated Fourth Edition is one of the best ways to prepare for the Financial Risk Manager (FRM) exam.

Financial Risk Manager Handbook, Fourth Edition supports candidates studying for the Global Association of Risk Professional’s (GARP) annual FRM exam and prepares you to assess and control risk in today’s rapidly changing financial world. Authored by renowned risk management expert Philippe Jorion—with the full support of GARP—this definitive guide summarizes the core body of knowledge for financial risk managers, covering such topics as:

• Quantitative methods
• Capital markets
• Credit, operational, market, and integrated risk management
• Investment management and hedge fund risk
• Relevant regulatory, legal, and accounting issues essential to risk professionals