PRAISE FOR Fixed Income Securities

"Fixed Income Securities is excellent, seamlessly combining theory and experience to make the global fixed income markets come alive for students and practitioners. It is obvious that the authors not only understand and articulate theory with ease, but also enjoy its application to myriad simple and complicated instruments." —Myron Scholes 1997 Nobel Laureate in Economics; Frank E. Buck Professor of Finance, Emeritus, Graduate School of Business, Stanford University

"It takes authors who have both insight into financial economics and a thorough understanding of how markets function to write a book that integrates theory and practice so effortlessly. As market turmoil forces us to revisit historical relationships, the book's setting of applications and data in the context of sound theory is particularly useful." —Ravi Mattu Managing Director and Head of Analytics, PIMCO

"Fixed Income Securities conveys intuition, is full of examples, and is comprehensive in its coverage. Professionals will find valuable insights in the authors' treatment of advanced topics; students will value the careful organization and presentation of ideas. I recommend it very highly indeed."
—Krishna Ramaswamy Edward Hopkinson, Jr. Professor of Investment Banking, The Wharton School, University of Pennsylvania

"This is a great reference book for fixed income students and practitioners alike, which seamlessly combines mathematical concepts with practical applications." —Kostas Pantazopoulos Global Head of Interest Rate Products, Goldman Sachs

Both working professionals and newcomers to the broad, complex, and competitive field of fixed income will appreciate the approach of authors Bruce Tuckman and Angel Serrat in this Third Edition, namely: theory and conceptual frameworks presented intuitively and without unnecessary abstraction; quantitative models and techniques developed with a minimum of mathematical complexity; institutional structures and market conventions described at a useful level of detail; and ideas clearly and profusely illustrated with market data, realistic examples, applications, and case studies.

Fixed Income Securities, Third Edition begins with an overview of global fixed income markets, focusing on those in the United States, Europe, and Japan. Who borrows and who lends? How big are the various players and markets? How has the 2007–2009 financial crisis manifested itself?

With the institutional background set, Part One of the book lays the foundations of fixed income pricing, namely, the arbitrage pricing of securities with fixed cash flows and the various ways to quote interest rates and returns. Part Two then describes interest rate risk and hedging, including: one-factor approaches (DV01, duration, and convexity); multi-factor approaches (key rate '01s and durations, partial '01s and PV01, and forward-bucket '01s); and empirical approaches (regression and principal component analyses).

Part Three shows how to price interest rate derivatives. It starts with the fundamentals, the arbitrage pricing of contingent claims and the determination of the shape of the yield curve, and then continues on to one-factor short-rate models. Finally, the last chapter of this part presents the Gauss+ model, a three-factor model popular with relative value traders, and—in a presentation unique for its mathematical simplicity—introduces the LMM model, an approach popular with exotic derivatives traders.

Part Four builds on the earlier parts of the book to present and analyze many other markets and securities, including repo, interest rate futures and derivatives, note and bond futures, interest rate and basis swaps, fixed income options, corporate bonds, credit default swaps, mortgages, and mortgage-backed securities. This part also contains a chapter explaining the industry's relatively recent shift from LIBOR to OIS discounting and another chapter on the practicalities of curve construction.

Fixed Income Securities, Third Edition has been written in such a way as to bring a necessarily complex subject matter—developed over years by leading academics and practitioners—to a broad audience of investors, traders, and other working finance professionals. This audience will indeed find this book an invaluable collection of tools for today's markets.