INTRODUCTION xiii

ACKNOWLEDGMENTS xv

PART ONE

The Relative Pricing of Fixed Income Securities with Fixed Cash Flows 1

CHAPTER 1

Bond Prices, Discount Factors, and Arbitrage 3

CHAPTER 2

Bond Prices, Spot Rates, and Forward Rates 23

CHAPTER 3

Yield-to-Maturity 41

CHAPTER 4

Generalizations and Curve Fitting 53

PART TWO

Measures of Price Sensitivity and Hedging 87

CHAPTER 5

One-Factor Measures of Price Sensitivity 89

PART THREE

Term Structure Models 169

CHAPTER 9

The Science of Term Structure Models 171

CHAPTER 10

The Short-Rate Process and the Shape of the Term Structure 193

CHAPTER 11

The Art of Term Structure Models: Drift 219

CHAPTER 12

The Art of Term Structure Models: Volatility and Distribution 245

CHAPTER 13

Multi-Factor Term Structure Models 259

CHAPTER 14

Trading with Term Structure Models 277

PART FOUR

Selected Securities 301

CHAPTER 15

Repo 303

CHAPTER 16

Forward Contracts 325

CHAPTER 17

Eurodollar and Fed Funds Futures 339

CHAPTER 18

Interest Rate Swaps 371

CHAPTER 19

Fixed Income Options 397

CHAPTER 20

Note and Bond Futures 423

CHAPTER 21

Mortgage-Backed Securities 455

EXERCISES 479

REFERENCES AND SUGGESTIONS FOR FURTHER READING 497