Bond Pricing and Yield Curve Modeling
Cambridge University Press, 6/7/2018
EAN 9781107165854, ISBN10: 1107165857
Hardcover, 520 pages, 23.5 x 16.3 x 2 cm
Language: English
In this book, well-known expert Riccardo Rebonato provides the theoretical foundations (no-arbitrage, convexity, expectations, risk premia) needed for the affine modeling of the government bond markets. He presents and critically discusses the wealth of empirical findings that have appeared in the literature of the last decade, and introduces the 'structural' models that are used by central banks, institutional investors, sovereign wealth funds, academics, and advanced practitioners to model the yield curve, to answer policy questions, to estimate the magnitude of the risk premium, to gauge market expectations, and to assess investment opportunities. Rebonato weaves precise theory with up-to-date empirical evidence to build, with the minimum mathematical sophistication required for the task, a critical understanding of what drives the government bond market.
Part I. The Foundations
1. What this book is about
2. Definitions, notation, and a few mathematical results
3. Links between models, monetary policy, and the macroeconomy
4. Bonds
their risks and their compensations
5. The risk factors in action
6. Principal components
theory
7. Principal components
empirical results
Part II. The Building Blocks – A First Look
8. A preview – a first look at the Vasicek model
9. Expectations
10. Convexity – a first look
Part III. No Arbitrage
11. No arbitrage in discrete time
12. No arbitrage in continuous time
13. No arbitrage with state price deflators
14. No-arbitrage conditions for real bonds
15. The links with an economics-based description of rates
Part IV. Solving the Models
16. Solving affine models
the Vasicek case
17. First extensions
18. A general pricing framework
19. The shadow rate
dealing with a near-zero lower bound
Part V. The Value of Convexity
20. The value of convexity
21. A model-independent approach to valuing convexity
22. Convexity
empirical results
Part VI. Excess Returns
23. Excess returns
setting the scene
24. Risk premia, the market price of risk, and expected excess returns
25. Excess returns
empirical results
26. Excess returns
the recent literature – I
27. Excess returns
the recent literature – II
28. Why is the slope a good predictor?
29. The spanning problem revisited
Part VII. What the Models Tell Us
30. The doubly-mean-reverting Vasicek model
31. Real yields, nominal yields, and inflation
the D'Amico–Kim–Wei model
32. From snapshots to structural models
the Diebold and Rudebush approach
33. Principal components as state variables of affine models
the PCA affine approach
34. Generalizations
the ACM model
35. An affine, stochastic-market-price-of-risk model
36. Conclusions
37. References.