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Over-the-counter (OTC)
Option-adjusted spread (OAS),
forward-dated transactions, 78
58“61, 133, 134f
market, 248, 253
impact, 61f
options, 168
interrelationships, 61f
products, 168, 260
pricing model, 200
transaction, 77
volatility, relationship, 200
Treasury options, 79
Option-pricing model,
modification, 69
P
Options
building-block approach, 56 PACs. See Planned amortization
deferred feature, 58 classes
interrelationships, 56f Par bond
in-the-money value, 208 curve, 26, 43
model, tree. See Binomial yield, 26
option model Par swap, 104
strategies, 168 Pass-through security, 134, 226
undervaluation/over- Payments, timeliness, 22
valuation, 57 Payoff profile, 127, 193, 206,
usage, 125f 207f. See also Call payoff
Option-type product, 214 profile; Callable bonds;
Ordinary income, 242 Forward agreement; Put
Ordinary least squares (OLS) payoff profile; Sigma;
regression, 183fn Variance; Volatility
Organization for Economic benefit, 208
Cooperation and Peer group, 5
Development (OECD), Perpetual bond, 97
Perpetuals, coupons, 97fn
259“260




TLFeBOOK
287
Index



sensitivity. See Delta; Theta;
Planet currency, 188
Vega
Planned amortization classes
test, 262
(PACs), 140“142. See also
uncertainty, 18, 25
Busted PAC
values, contrast, 177t, 181t
application, 142f
volatility, 226. See At-the-
Portfolio
money
construction. See Bonds
yield, relationship, 200
duration, 185
Price to book value, 231
emphasis, 152
Price-depressing effect, 81
managers, 96, 162“164, 167fn.
Price-earnings (P/E) ratio,
See also Indexed portfolio
150, 231
managers; Total returns
Price-lifting effect, 81
forecast, 234
Price/yield relationship, 179“180
product mix, 165
comparison, 178f, 179f, 181f
Positive carry, 118, 124
Principal, 4
PPP. See Purchasing power parity
balances, 234f
Predetermined life span, 3
Principal payments, 135“137
Preferred stock, 144. See also
Principal-coupon cash flows, 137
Equities
Priorities, 5“8
type, 145
ranking, 4
Premium currency, 49
Probability
Prepayments, 129, 135
profiles, 236f
rate. See Constant prepayment
reduction, 235
rate
uncertainty, label, 222
speed, 142
value, 139
Present value, modified duration
Probability-weighted principal,
(price differences), 177
140
Present yield, 25
Probability-weighted value, 140
Price
Productivity, 8
cone. See Coupon-bearing
Products, 3. See also Option-type
Treasury; Currencies;
product
Equities
characteristics, 255t
risk, 223, 236. See also
construction, 76
Equities
interrelationships, 204“206
currency classification, 187f




TLFeBOOK
288 INDEX


Products, 3 (continued) Reference curve, 45
mix. See Portfolio Regression analysis, 219
rankings, continuum, 6f Reinvested proceeds, 165
restrictions, 263f Reinvestment
Profit opportunities, 118 rates, 20“21, 41, 223fn, 229fn
Profitability, 29 uncertainty, 18
Promises, 3“8 Reinvestment risk, 195, 223, 236
Prospectus, usage, 250“253 comparison, 225
Public Securities Association dispensing, 227
(PSA) model, 138 uncertainty, 225
Purchasing power parity (PPP), Relative return
9“13 fund, 150
models, 232 investing, 153“159
Put option, 147. See also In-the- strategies, 161“164
money Relative value, 27, 79
value, 53, 146 REMICs, 262
Put payoff profile, 208 Repurchase (repo). See Reverse
Putable bonds, 148“149 repo
agreement, 123, 195
Q financing. See Synthetic option
market, 36, 79
Quality option, 121fn
rate. See Implied repo rate
R Residual tranche, 141
Retirement accounts (401k
Raised debt, 86
plans), 242
RAROC. See Risk-adjusted
Return on risk-adjusted capital
return on capital
(RORAC), 219“220
RARORAC. See Risk-adjusted
Return profile, 194f
return on risk-adjusted
Reverse repo, 123, 124f
capital
Rho risk, 127
Rating. See Issuers; Split maturity
Risk. See Benchmark; Credit
rating
risks; Price; Reinvestment
agencies, 74, 82, 97
risk
insurance. See Credit
adjustment, 218“219
Recoveries, 94t
calculations, 221
rates. See Weighted average
capital, allocation, 216f
discounted recovery rates




TLFeBOOK
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Index



conceptualization, 108f S
limits, 217 Sale price, 17
macro context, 234“235 Same-day settlement, 33
management, 161, 171, Savings and loan crisis (1990s),
222“225 256
appendix, 238“240 Scenario analysis, 233“234, 237
procedures, 260 Secondary markets, 212
measurement, 185 Securities
profile, 214 face value, 211
conceptual mapping, 225f, forward duration value, 191
237f hedging. See Market neutral
tolerance, 221 lending, 122“123
variable, 197 market, 36
Risk-adjusted return on capital prices, 231
(RAROC), 218“220 purchase, 248
Risk-adjusted return on risk- risk, 79
adjusted capital risk/return profile, 159
(RARORAC), 219 Securities and Exchange
Risk-adjusted variables, Commission (SEC), 242
219“220 Securitization. See Loan profiles
Risk-based capital guidelines, Security-specific risk, 219
259 Selling short, 16
Risk-free asset, 211 Senior structures, 201“202
Risk-free investment, 195 Separately Traded Registered
Risk-free product, 122 Interest and Principal
Risk-free rate, 194“197 Securities (STRIPS), 164“165
Risk-oriented bondholders, 252 30“year. See U.S. Treasury
Risk/return profiles, 172, 205 STRIPS
Risk-reward trade-offs, 226, 235 Servicer. See Asset-backed
Road shows, 83 securities
Roll down, phenomenon, Settlement
239“240 agreement, 34
Roll risk, 239 dates, 15, 33, 175
Roll-down risk, 239 Shareholders, 4
RORAC. See Return on risk- Short call option, 70
adjusted capital price, 199




TLFeBOOK
290 INDEX


Spread. See Nominal spread;
Short selling, 125
Swaps
fund types, 152
calculation. See Nominal yield
Short-dated liabilities, 157
difference, 44
Shorter-dated debt, 76
value, 29
Shorter-maturity bonds, 78
SPVs. See Special-purpose
Short-term bonds, 76
vehicles
Short-term borrowings, 76
Standard & Poor™s
Short-term horizons, 192
100 (S&P100), 162
Short-term interest rates, 41
ratings, usage, 166
Short-term investment, 259
statistical data, 98
Sigma, 161
survey/report, 94“95
payoff profiles, 126f
Standard & Poor™s 500
Singapore, credit allocation, 218
(S&P500), 153
Single-B company, 200“201
change, 182
Single-C company, 201
equity index, 150
Size restrictions, 168
futures contract, 48, 126
Small caps, 162
price history, 185
Special. See On special
rally, 206
Special-purpose vehicles (SPVs),
returns, 161
93, 106, 256
usage, 183“184
Speed. See Prepayments

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