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For nearly two decades, individual and institutional investors have relied on The Handbook of Fixed Income Securities as the world’s leading reference for fixed income information. This new edition continues to define the field, while broadening its focus with new chapters on derivatives, a greater focus on structured finance and international markets, and more emphasis on applied material for today’s time-pressed practitioner. Influential editor Frank J. Fabozzi and today’s top fixed income authorities address the latest developments, financial instruments, and portfolio strategies. Money managers and institutional investors will turn to this thoroughly revised edition for: ? Strategies for managing corporate bond portfolios ? Expanded coverage on asset backed securities ? Techniques for hedging risk in emerging markets

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CONTENTS
Preface = xxiii
Acknowledgments = xxv
Contributors = xxvii
PART 1 BACKGROUND
 Chapter 1 Overview of the Types and Features of Fixed Income Securities / Frank J. Fabozzi ; Michael G. Ferri ; Steven V. Mann = 3
  Bonds = 3
  Preferred Stock = 15
  Mortgage-Backed Securities = 17
  Asset-Baked Securities = 19
  Summary = 20
 Chapter 2 Risks Associated with Investing in Fixed Income Securities / Ravi E. Dattatreya ; Frank J. Fabozzi = 21
  Market or Interest-Rate Risk = 22
  Reinvestment Risk = 22
  Timing or Call Risk = 23
  Credit Risk or Default Risk = 24
  Yield-Curve or Maturity Risk = 24
  Inflation or Purchasing Power Risk = 24
  Liquidity Risk = 25
  Exchange Rate or Currency Risk = 27
  Volatility Risk = 27
  Political or Legal Risk = 27
  Event Risk = 28
  Sector Risk = 28
  Other Risks = 29
  Summary = 29
 Chapter 3 A Review of the Time Value of Money / Frank J. Fabozzi = 31
  Future Value = 31
  Present Value = 38
  Yield(Internal Rate of Return) = 46
  Summary = 50
 Chapter 4 Bond Pricing and Return Measures / Frank J. Fabozzi = 51
  Bond Pricing = 51
  Conventional Yield Measures = 64
  Total Return Analysis = 75
  Summary = 83
 Chapter 5 Measuring Interest Rate Risk / Frank J. Fabozzi ; Gerald W. Buetow, Jr. ; Robert R. Johnson = 85
  The Full Valuation Approach = 86
  Price Volatility Characteristics of Bonds = 90
  Duration = 99
  Convexity = 112
  Price Value of a Basis Point = 124
  The Importance of Yield Volatility = 127
 Chapter 6 The Structure of Interest Rates / Frank J. Fabozzi = 131
  The Base Interest Rate = 131
  Risk Premium = 132
  The Term Structure of Interest Rates = 136
  Summary = 153
 Chapter 7 Bond Market Indexes / Frank K. Reilly ; David J. Wright = 155
  Uses of Bond Indexes = 155
  Building and Maintaining a Bond Index = 157
  Description of Alternative Bond Indexes = 158
  Risk／Return Characteristics = 163
  Correlation Relationships = 166
  Conclusion = 171
PART 2 GOVERNMENT AND PRIVATE DEBT OBLIGATIONS
 Chapter 8 U.S. Treasury and Agency Securities / Frank J. Fabozzi ; Michael J. Fleming = 175
  Treasury Securities = 175
  Agency Securities = 187
  Summary = 196
 Chapter 9 Municipal Bonds / Sylvan G. Feldstein ; Frank J. Fabozzi ; Patrick M. Kennedy = 197
  Features of Municipal Securities = 199
  Types of Municipal Obligations = 202
  The Commercial Credit Rating of Municipal Bonds = 212
  Municipal Bond Insurance = 216
  Valuation Methods = 218
  Tax Provisions Affecting Municipals = 220
  Yield Relationships within the Municipal Bond Market = 223
  Primary and Secondary Markets = 225
  Bond Indexes = 227
  Official Statement = 227
  Regulation of the Municipal Securities Market = 228
 Chapter 10 Private Money Market Instruments / Frank J. Fabozzi ; Steven V. Mann = 231
  Commercial Paper = 231
  Bankers Acceptances = 235
  Large-Denomination Negotiable CDs = 239
  Repurchase Agreements = 243
  Federal Funds = 248
  Summary = 250
 Chapter 11 Corporate Bonds / Frank J. Fabozzi ; Richard S. Wilson ; Richard Todd = 253
  The Corporate Trustee = 254
  Some Bond Fundamentals = 255
  Security for Bonds = 259
  Provisions for Paying Off Bonds = 265
  Corporate Bond Ratings = 271
  Event Risk = 272
  Speculative-Grade Bonds = 275
  Default Rates and Recovery Rates = 278
 Chapter 12 Medium-Term Notes / Leland E. Crabbe = 283
  Background of the MTN Market = 284
  Mechanics of the Market = 286
  The Economics of MTNs and Corporate Bonds = 288
  The Federal Reserve Board's Survey of U.S. Corporate MTNs = 291
  Developments in the MTN Market = 294
  Euro-MTNs = 298
  Outlook for the MTN Market = 300
 Chapter 13 Inflation-Indexed Bonds(TIPS) / John B. Brynjolfsson = 301
  Mechanics and Measurement = 303
  Marketplace = 310
  Valuation and Performance Dynamics = 314
  Investors = 315
  Issuers = 319
  Other Issues = 322
  Conclusion = 323
 Chapter 14 Floating-Rate Securities / Steven V. Mann ; Frank J. Fabozzi = 325
  General Features of Floaters and Major Product Types = 326
  Call and Put Provisions = 328
  Spread Measures = 329
  Price Volatility Characteristics of Floaters = 331
  Portfolio Strategies = 334
 Chapter 15 Nonconvertible Preferred Stock / Richard S. Wilson = 337
  The Essential Nature of Preferred Stocks = 337
  Profile of the Preferred Stock Market = 337
  Preferred-Stock Ratings = 341
  The Terms of the Bargain with Investors = 341
  Multiple Issues of One Class of Preferred = 353
  Taxability of Preferred Stock Dividends = 354
  The Market for Preferreds = 358
  Sources of Information about Preferred Stocks = 359
  Summary = 360
 Chapter 16 International Bond Markets and Instruments / Christopher B. Steward = 361
  Introduction = 361
  The Instruments : Euro, Foreign, and Global = 362
  U.S.-Pay International Bonds = 363
  Foreign-Pay International Bonds = 371
  Conclusion = 377
 Chapter 17 Brady Bonds / Jane Sachar Brauer ; Douglas Chen = 379
  The Brady Plan = 380
  Types of Brady Bonds = 382
  Retiring Brady Bonds : Buybacks and Exchanges = 386
  Credit Ratings = 388
  Assessing Value in Brady Bonds = 391
  High Yields Have Attracted New Investors = 393
 Chapter 18 Stable Value Investments / Kenneth L. Walker = 399
  Types of Contracts and Strategies = 399
  Stable Value Investment Contracts = 400
  Types of SICs = 405
  Investment Considerations = 408
  Emerging Markets = 409
  Funding Agreements = 409
  Summary = 410
  Method 1 - Internal Rate of Return = 411
  Method 2 - Discount Rate Which Equates Current Book Value to Theoretical Future Value = 412
  Method 3 - Difference Between Market Value and Book Value Divided by Duration = 413
PART 3 CREDIT ANALYSIS
 Chapter 19 Credit Analysis for Corporate Bonds / Jane Tripp Howe = 417
  Industry Considerations = 419
  Financial Analysis = 425
  Indenture Provisions = 436
  Utilities = 443
  Finance Companies = 450
  The Rating Agencies and Brokerage Houses = 456
  Conclusion = 457
 Chapter 20 Credit Considerations in Evaluating High-Yield Bonds / Jane Tripp Howe = 459
  Introduction = 459
  Special Types of High-Yield Securities = 464
  Performance of High-Yield Securities and Default Risk = 466
  Brokerage Houses and the Rating Agencies = 467
  Conclusion = 467
 Chapter 21 Investing in Chapter 11 and Other Distressed Companies / Jane Tripp Howe = 469
  The Importance of a Basic Understanding = 470
  Overview of Bankruptcy = 470
  Analysis of Companies in Reorganization = 478
  Obtaining Financial Information = 479
  Conclusion = 488
 Chapter 22 Guidelines in the Credit Analysis of General Obligation and Revenue Municipal Bonds / Sylvan G. Feldstein = 491
  Introduction = 491
  The Legal Opinion = 492
  The Need to Know Who Really Is the Issuer = 497
  On the Financial Advisor and Underwriter = 498
  General Credit Indicators and Economic Factors in the Credit Analysis = 499
  Red Flags for the Investor = 516
 Chapter 23 High-Yield Analysis of Emerging Markets Debt / Allen A. Vine = 519
  Introduction = 519
  Background on Emerging Markets = 520
  The Value Triangle = 522
  Analysis of Cross-Border Risk = 523
  Limitations of Sovereign Analysis = 531
  Analysis of Capital Formation ／Technical Conditions = 532
  Issues of Fundamental Risk = 536
  Fundamental Valuation = 538
  Financial Disclosure, Contracts, and Bankruptcy = 540
  Summary = 542
PART 4 MORTGAGE-BACKED AND ASSET BACKED SECURITIES
 Chapter 24 Mortgages and Overview of Mortgage-Backed Securities / Frank J. Fabozzi ; Chuck Ramsey = 549
  Participants in the Mortgage Market = 550
  Alternative Mortgage Instruments = 553
  Prepayment Risk = 560
  Default Risk = 561
  Prepayment Penalty Mortgages = 563
  Overview of Mortgage-Backed Securities = 564
 Chapter 25 Mortgage Pass-Throughs / Lakhbir S. Hayre ; Cyrus Mohebbi ; Thomas A. Zimmerman = 573
  Introduction = 573
  Origins of MBS Pass-Throughs = 574
  Modeling MBS Cash Flows = 579
  Relative Value = 606
  Summary = 612
 Chapter 26 Collateralized Mortgage Obligations / Lehman Brothers Inc. = 619
  Introduction = 619
  Pass-Throughs and Whole Loans : The Building Blocks of CMOs = 621
  CMO Structures = 623
  PAC Band Drift = 637
  CMO Structuring Example = 639
  Regulatory Developments Affecting CMOs = 639
  Evaluating CMOs = 643
  The CMO／Collateral Pricing Relationship = 646
  CMO Trading and Clearing = 647
  Conclusion = 648
 Chapter 27 Nonagency CMOS / Frank J. Fabozzi ; Anthony B. Sanders ; David Yuen ; Chuck Ramsey = 649
  Credit Enhancements = 649
  Internal Credit Enhancements = 651
  Compensating Interest = 654
  Weighted Average Coupon Dispersion = 655
  Clean-Up Call Provisions = 656
  Assessing Prepayment Rates of Nonagency CMOS = 657
  PSA Standard Default Assumption Benchmark = 659
  Prepayment and Default Resistant Mortgages = 661
 Chapter 28 Commercial Mortgage-Backed Securities / Anthony B. Sanders = 663
  Introduction = 663
  The CMBS Deal = 663
  The Underlying Loan Portfolio = 669
  Creating a CMBS Model = 674
  The Role of the Servicer = 675
  Innovations in the CMBS Market : "Buy-Up" Loans = 675
  Summary = 677
 Chapter 29 Securities Backed by Automobile Loans / W. Alexander Roever ; John N. McElravey ; Glenn M. Schultz = 679
  Introduction = 679
  Auto Loan Backed Securities = 680
  Auto Lease ABS = 689
  Relative Value Analysis of Auto ABS = 696
  Conclusion = 702
 Chapter 30 Securities Backed by Closed-End Home Equity Loans / R. Russell Hurst = 703
  Introduction = 703
  What Is the U.S. Home Equity Loan Today? = 703
  Basic Structure = 705
  Rating Agency Approach = 710
  HEL Collateral Performance = 712
  HEL Prepayment Experience = 714
  Separating HEL Credit Risk from the Market Pricing of That Risk = 715
  Headline Risk and Hard Times = 716
 Chapter 31 Securities Backed by Manufactured Housing Loans / James S. Anderson ; Kristina L. Clark = 721
  Introduction = 721
  What Is a Manufactured House? = 722
  Manufactured Housing Loan Products = 723
  Who Are the Borrowers? = 724
  Overview of Manufactured Housing ABS = 725
  Pool Characteristics = 726
  Drawing Borrowers and the Effect on Securitization Pools = 727
  Issuer Profiles = 729
  Manufactured Housing Prepayment Models = 733
  Conclusion = 737
 Chapter 32 Securities Backed by Credit Card Receivables / John N. McElravey = 739
  Introduction = 739
  Securitization of Credit Card Receivables = 739
  Basic Master Trust Structure = 740
  The Credt Card ABS Market = 750
  Conclusion = 756
PART 5 FIXED INCOME ANALYTICS AND MODELING
 Chapter 33 Characteristics of and Strategies with Callable Securities / Douglas Johnston = 759
  Introduction = 759
  Why Callables? = 759
  Dissecting the Callable = 761
  Performance and Strategies = 765
  Conclusion = 771
 Chapter 34 Valuation of Bonds with Embedded Options / Frank J. Fabozzi ; Andrew J. Kalotay ; George O. Williams = 773
  Implications of Callable Bonds = 773
  Components of Bonds with Embedded Options = 774
  A Generalized Model for Valuing Bonds with Embedded Options = 775
  Valuation of Optionless Bonds = 775
  Binomial Interest-Rate Trees = 776
  The Challenge of Implementation = 793
  Summary = 793
 Chapter 35 Valuation of CMOs / Frank J. Fabozzi ; Scott F. Richard ; David S. Horowitz = 795
  Introduction = 795
  Static Valuation = 796
  Dynamic Valuation Modeling = 797
  Illustrations = 805
  Summary = 817
 Chapter 36 Fixed Income Risk Modeling / Ronald N. Kahn = 819
  The Valuation Model = 820
  The Risk Model = 824
  Performance = 827
  Portfolio Risk Characterization = 829
  Summary = 830
 Chapter 37 OAS and Effective Duration / David Audley ; Richard Chin ; Shrikant Ramamurthy = 831
  The Price／Yield Relationship for Option-Embedded Bonds = 832
  Effective Duration = 837
  Effective Maturity = 840
  Option-Adjusted Spreads = 842
  Summary = 846
 Chapter 38 Evaluating Amortizing ABS : A Primer on Static Spread / Anthony V. Thompson = 847
  Introduction = 847
  The Drawbacks of Using Average Maturity to Determine Yield = 847
  Static Spread Creates a Level Playing Field = 849
  Conclusion = 852
PART 6 PORTFOLIO MANAGEMENT
 Chapter 39 Bond Management : Past, Current, and Future / H. Gifford Fong = 855
  Traditional Fixed Income Portfolio Strategy = 855
  Historical Perspective = 856
  Quantitative Innovation = 858
  Summary = 861
 Chapter 40 The Active Decisions in the Selection of Passive Management and Performance Bogeys / Chris P. Dialynas = 863
  Active Bond Management = 863
  Market Indexes = 864
  Performance Characteristics of Callable and Noncallable Bonds = 866
  A Look at Market Volatility = 869
  A Look at Interest Rates = 869
  The Implicit Forecasts of Volatility and Interest Rates = 876
  The Importance of Coupon Concentration in Relative LBGC／LBAG Performance = 881
  The Importance of Changes in the Shape of Yield Curve = 883
  Index Consciousness = 883
  Some Important Miscellaneous Comments About Indexes = 884
 Chapter 41 Managing Indexed and Enhanced Indexed Bond Portfolios / Kenneth E. Volpert = 887
  Overview of Domestic Bond Management = 887
  Why Index Bond Portfolios? = 890
  Which Index Should Be Used? = 892
  Primary Bond Indexing Risk Factors = 895
  Bond Index Enhancements = 901
  Measuring Success = 907
 Chapter 42 Global Corporate Bond Portfolio Management / Jack Malvey = 913
  Introduction = 913
  Corporate Relative-Value Analysis = 919
  Relative-Value Methodologies = 922
  Conclusion = 942
 Chapter 43 Management of a High-Yield Bond Portfolio / J. Thomas Madden ; Joseph Balestrino = 945
  Introduction = 945
  Definition of Portfolio Objective = 946
  Summary of High-Yield Investment Strategy = 946
  Analyzing the High-Yield Investment Banking Process = 950
  Issues of Problem Credits = 952
  Conclusion = 955
 Chapter 44 Bond Immunization : An Asset／Liability Optimization Strategy / Frank J. Fabozzi ; Peter F. Christensen = 957
  What Is an Immunized Portfolio? = 957
  Maturity-Matching : The Reinvestment Problem = 958
  Single-Period Immunization = 959
  Rebalancing Procedures = 963
  Multiperiod Immunization = 963
  Applications of the Immunization Strategy = 965
  Variations to Immunization = 966
  Conclusion = 967
 Chapter 45 Dedicated Bond Portfolios / Frank J. Fabozzi ; Peter F. Christensen = 969
  The Need for a Broader Asset／Liability Focus = 969
  Cash Flow Matching for Pension Funds = 970
  Role of Money Manager and Dealer Firm = 982
  Conclusion = 984
 Chapter 46 Managing Market Risk Proactively at Long-Term Investment Funds / Lang Gibson = 985
  Introduction = 985
  Best Practice Modern Asset／Liability Management = 986
  Liability Risk and Pricing = 989
  Benchmarks versus Liabilities = 991
  The Efficient Frontier = 993
  Efficient Benchmark Allocations = 996
  Impact of Correlations on Efficiency = 999
  Contribution to Risk = 1001
  Equally Weighted Fixed Income Sectors = 1002
  Stress Testing VAR on Heat Maps = 1005
  Regulatory and Literature Guidance = 1008
  Model Assumptions That Should Be Monitored = 1009
  Conclusion = 1010
 Chapter 47 Improving Insurance Company Portfolio Returns / Kevin Edward Grant = 1011
  Special Considerations for Insurance Company Portfolios = 1012
  Don't Buy and Hold, Buy and Incubate = 1012
  Existing Approaches to Asset／Liability Management = 1013
  The Wish List for Portfolio Management = 1017
  Total Return in the Asset／Liability／Regulatory／GAAP／Tax World = 1019
  Probability Distributions : The Next Frontier = 1021
  Conclusion = 1026
 Chapter 48 International Bond Investing and Portfolio Management / Christopher B. Steward ; Adam M. Greshin = 1027
  Introduction = 1027
  The Rationale for International Bond Investing = 1028
  The Impact of International Bonds on a U.S. Bond Portfolio : The Case for International Bond Investing = 1040
  Active International Bond Management = 1044
  The Tools of Active Management = 1045
  Managing an International Bond Portfolio = 1049
  Currency-Hedged Bond Investment = 1051
  Conclusion = 1058
 Chapter 49 International Fixed Income Investing : Theory and Practice / Michael R. Rosenberg = 1061
  The Case for International Fixed Income Diversification = 1062
  Why There Is No Free Lunch in Currency-Hedged Foreign Bonds = 1068
  Why There Is No Free Lunch in High-Yield Foreign Bonds = 1074
  The Case for Active Management = 1077
  General Guidelines for Constructing a Global Bond Portfolio = 1081
  A Framework for Formulating International Fixed Income Strategy = 1085
  Conclusion = 1099
PART 7 EQUITY-LINKED SECURITIES AND THEIR VALUATION
 Chapter 50 Convertible Securities and Their Investment Characteristics / Chris P. Dialynas ; Sandra Durn ; John C. Ritchie, Jr. = 1103
  Introduction = 1103
  General Characteristics of Convertibles = 1104
  Advantages and Disadvantages to Issuing Firms = 1106
  Advantages to the Investor = 1109
  Disadvantages to the Investor = 1109
  Alternative Forms of Convertible Financing = 1110
  Types of Convertible Investors = 1110
  Analysis of Convertible Securities = 1111
  An Illustrative Analysis = 1112
  Duration Management = 1122
  Valuation of Convertibles = 1123
  Summary = 1124
 Chapter 51 Convertible Securities and Their Valuation / Mihir Bhattacharya = 1127
  Evolution in the Convertible Markets = 1130
  Basic Characteristics of Convertible Securities = 1146
  Traditional Valuation Method = 1152
  Convertible Valuation Models = 1155
  Exercising the Embedded Options = 1167
  Looking Forward = 1170
  Summary = 1171
PART 8 DERIVATIVE INSTRUMENTS AND THEIR PORTFOLIO MANAGEMENT APPLICATIONS
 Chapter 52 Introduction to Interest-Rate Futures and Options Contracts / Mark Pitts ; Frank J. Fabozzi = 1175
  Basic Characteristics of Derivative Contracts = 1175
  Representative Exchange-Traded Interest-Rate Futures Contracts = 1179
  Representative Exchange-Traded Futures Options Contracts = 1186
  OTC Contracts = 1189
  Summary = 1196
 Chapter 53 Pricing Futures and Portfolio Applications / Frank J. Fabozzi ; Mark Pitts = 1197
  Pricing of Futures Contracts = 1197
  Applications to Portfolio Management = 1205
  Summary = 1208
 Chapter 54 Treasury Bond Futures Mechanics and Basis Valuation / David T. Kim = 1209
  Introduction = 1209
  Mechanics of the Futures Contract = 1210
  The Basis = 1214
  Carry = 1215
  Options = 1217
  Conclusion = 1232
 Chapter 55 The Basics of Interest-Rate Options / William J. Gartland ; Nicholas C. Letica = 1233
  How Options Work = 1233
  Options Strategies - Reorganizing the Profit／Loss Graph = 1245
  Classic Option Strategies = 1248
  Practical Portfolio Strategies = 1251
  Conclusion = 1257
 Chapter 56 Controlling Interest Rate Risk with Futures and Options / Frank J. Fabozzi ; Shrikant Ramamurthy ; Mark Pitts = 1259
  Controlling Interest Rate Risk with Futures = 1259
  Hedging with Options = 1278
  Summary = 1293
 Chapter 57 Interest-Rate Swaps / Anand K. Bhattacharya ; Frank J. Fabozzi = 1297
  Interest-Rate Swaps = 1298
  Features of a Generic Swap = 1298
  Interpreting a Swap Position = 1299
  Terminology, Conventions, and Market Quotes = 1301
  Applications = 1302
  Dollar Duration of a Swap = 1306
  Innovations in Swap Markets = 1306
  Asset Swap = 1312
  Termination of Interest-Rate Swaps = 1313
  Summary = 1315
 Chapter 58 Interest-Rate Caps and Floors and Compound Options / Anand K. Bhattacharya = 1317
  Features of Interest-Rate Caps and Floors = 1317
  Pricing of Caps and Floors = 1318
  Interest-Rate Caps = 1319
  Participating Caps = 1322
  Interest-Rate Floors = 1324
  Interest-Rate Collars = 1326
  Interest-Rate Corridors = 1327
  Cap／Floor Parity = 1329
  Termination of Caps and Floors = 1330
  Compound Options = 1331
  Concluding Comments = 1335
Index = 1337