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Option-adjusted spread (OAS),

forward-dated transactions, 78

58â€“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

259â€“260

TLFeBOOK

287

Index

sensitivity. See Delta; Theta;

Planet currency, 188

Vega

Planned amortization classes

test, 262

(PACs), 140â€“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, 162â€“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, 179â€“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, 135â€“137

Preferred stock, 144. See also

Principal-coupon cash flows, 137

Equities

Priorities, 5â€“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, 204â€“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, 20â€“21, 41, 223fn, 229fn

Profitability, 29 uncertainty, 18

Promises, 3â€“8 Reinvestment risk, 195, 223, 236

Prospectus, usage, 250â€“253 comparison, 225

Public Securities Association dispensing, 227

(PSA) model, 138 uncertainty, 225

Purchasing power parity (PPP), Relative return

9â€“13 fund, 150

models, 232 investing, 153â€“159

Put option, 147. See also In-the- strategies, 161â€“164

money Relative value, 27, 79

value, 53, 146 REMICs, 262

Put payoff profile, 208 Repurchase (repo). See Reverse

Putable bonds, 148â€“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), 219â€“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, 218â€“219

Recoveries, 94t

calculations, 221

rates. See Weighted average

capital, allocation, 216f

discounted recovery rates

TLFeBOOK

289

Index

conceptualization, 108f S

limits, 217 Sale price, 17

macro context, 234â€“235 Same-day settlement, 33

management, 161, 171, Savings and loan crisis (1990s),

222â€“225 256

appendix, 238â€“240 Scenario analysis, 233â€“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, 122â€“123

variable, 197 market, 36

Risk-adjusted return on capital prices, 231

(RAROC), 218â€“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

219â€“220 Securitization. See Loan profiles

Risk-based capital guidelines, Security-specific risk, 219

259 Selling short, 16

Risk-free asset, 211 Senior structures, 201â€“202

Risk-free investment, 195 Separately Traded Registered

Risk-free product, 122 Interest and Principal

Risk-free rate, 194â€“197 Securities (STRIPS), 164â€“165

Risk-oriented bondholders, 252 30â€“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

239â€“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 & Poorâ€™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, 94â€“95

payoff profiles, 126f

Standard & Poorâ€™s 500

Singapore, credit allocation, 218

(S&P500), 153

Single-B company, 200â€“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, 183â€“184

Speed. See Prepayments

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