Fixed Income Relative Value Analysis + Website (eBook)

DOUG HUGGINS, London, has been working in the fixed income markets in the US and Europe for 32 years. He managed the European fixed income relative value research group at Deutsche Bank in the late 90's, when the group was voted best in its class for three consecutive years by the readers of Global Investor Magazine. He joined ABN AMRO in 2001 as Global Head of Fixed Income Relative Value Research, and subsequently became the firm's Global Head of Hedge Fund Sales. In 2003, he started a proprietary trading desk at ABN, focusing on fixed income relative value opportunities. He continued a career as a relative value trader in the London offices of two global hedge funds: Citadel and Old Lane. Doug has a Ph.D. in financial economics and statistics from the University of Chicago. CHRISTIAN SCHALLER, Eisenstadt, Austria earned a Ph.D. in Mathematics at the University of Bonn, Germany before learning the tools of the fixed income trade in the Relative Value team at Deutsche Bank, managed by Anshu Jain. Over time, he's made a number of original contributions, particularly in the areas of principal component analysis and basis swap modeling. While responsible for Deutsche Bank's research in Tokyo, he was voted "best relative value researcher" by customers in the Greenwich survey. Since 2004, he has been providing consulting and training for financial institutions through his consulting firms in Japan and Austria and as a trainer for The Technical Analyst in London. In early 2017, Christian and Doug created QMA Analytics, a London-based firm providing analytic software for financial market participants.

Preface to the Second Edition vii

Chapter 1 Relative Value 1

Part I Statistical Models

Chapter 2 Mean Reversion 17

Chapter 3 Principal Component Analysis 51

Chapter 4 Multivariate Mean Reversion 111

Part II Financial Models

Chapter 5 Some Comments on Yield, Duration, and Convexity 137

Chapter 6 Some Comments on Yield Curve Models 143

Chapter 7 Bond Futures Contracts 149

Chapter 8 Fitted Bond Curves 167

Chapter 9 An Analytic Process for Government Bond Markets 183

Chapter 10 Overview of the Following Chapters: Asset, Basis, Credit Default Swaps and their Mutual Influences 187

Chapter 11 Reference Rates 193

Chapter 12 Asset Swaps 213

Chapter 13 Credit Default Swaps 233

Chapter 14 Intra-Currency Basis Swaps 265

Chapter 15 Cross-Currency Basis Swaps 271

Chapter 16 Combinations and Mutual Influences of Asset, Basis, and Credit Default Swaps 287

Chapter 17 Global Bond RV Via Fitted Curves and Via SOFR Asset Swap Spreads 307

Chapter 18 Other Factors Affecting Swap Spreads 321

Chapter 19 Options 335

Chapter 20 Relative Value in a Broader Perspective 385

Bibliography 393

Index 395