Bhansali - Bond portfolio investing and risk management: positioning fixed income portfolios for robust returns after the financial crisis

Praise for Bond Portfolio Investing and Risk
Management

Bonds areto borrow from Friedmanalways and everywhere a quants domain. Vineer has done a masterful job of creating the reference for risk management in the bond world. This book is deep, thorough, and well written. We already view it as a go-to reference for our own investments.

Robert D. Arnott
Chairman, Research Affiliates, LLC
Jason Hsu
CIO, Research Affiliates, LLC

Excess returns or yields do not come without risk. Bond Portfolio Investing and Risk Management delves comprehensively but intuitively into the various risk factors and delivers the tools to understand, measure, control, and take advantage of risk premiums in practical fixed income investing. As the financial crisis has made all too clear, this books unifying treatment of risk and return is essential for all bond investors.

Andrew Ang
Ann F. Kaplan Professor of Business, Columbia Business School

If financial theory broke during the crisis, then this book shows how to fix up fixed income finance.

Peter Carr, Ph.D.
Global Head of Market Modeling, Morgan Stanley
Executive Director, Masters in Math Finance, NYU

This moves instantly to the top of my recommended list of important reading for concept-oriented fixed income investors. Profit by learning how a true expert makes risk-return tradeoffs when constructing portfolios of bonds and related derivatives.

Darrell Duffie
Dean Witter Distinguished Professor of Finance
Graduate School of Business
Stanford University

Bottom line: This book will be valuable for all bond managers by providing fresh and important insights for the postcrisis market, which in our biz is the highest compliment a competitor can offer.

Bennett W. Golub, Ph.D.
Chief Risk Officer
BlackRock, Inc.

This well-written book provides an excellent guide to the fundamental economic factors driving fixed income portfolios. In a masterful way, Bhansali is able to provide deep insights and intuition about key issues such as optionality, convexity, systemic risk, and tail risk using both his extensive knowledge of fixed income markets and many real-world examples drawn from his long trading experience. This is a must-read book for anyone navigating the postcrisis fixed income markets.

Francis Longstaff
Allstate Professor of Insurance and Finance, Area Chair
UCLA

Vineer Bhansali combines the mathematical rigor of a trained physicist with the commonsense wisdom of a school-of-hard-knocks practitioner to deliver a unique prism into the world of bond investment and risk management after the financial crisis. The book is not just valuable but extremely timely. You wont want to read it quickly, but slowly and thoughtfully, because it is an analytical mosaic, not simply a well-written narrative, even though it is indeed that. Bravo, Vineer!

Paul McCulley
Managing Director
PIMCO

Drawing on his years of experience as a portfolio manager, his knowledge of and contributions to the academic literature, and his quantitative training, Bhansali bridges the gap between book knowledge and the practicalities of successful long-term investing. By focusing attention on big-picture questions that are often forgotten in the course of portfolio optimizationWhich options are you short? Who else is in the trade? What will happen in a liquidity-stress scenario?this book will help asset managers to improve the risk-return characteristics of their portfolios and to avert disasters.

Bruce Tuckman
Author of Fixed Income Securities and Director of Financial Markets
Research Center for Financial Stability

How has the recent crisis changed the true value of bonds? One of PIMCOs brightest provides the answer.

Jack Treynor

Bond Portfolio Investing and Risk Management

POSITIONING FIXED INCOME PORTFOLIOS FOR
ROBUST RETURNS AFTER THE FINANCIAL CRISIS

VINEER BHANSALI

Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher.

ISBN: 978-0-07-171325-2

MHID: 0-07-171325-5

The material in this eBook also appears in the print version of this title: ISBN: 978-0-07-162370-4, MHID: 0-07-162370-1.

All trademarks are trademarks of their respective owners. Rather than put a trademark symbol after every occurrence of a trademarked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the trademark. Where such designations appear in this book, they have been printed with initial caps.

McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales promotions, or for use in corporate training programs. To contact a representative please visit the Contact Us page at www.mhprofessional.com.

TERMS OF USE

This is a copyrighted work and The McGraw-Hill Companies, Inc. (McGraw-Hill) and its licensors reserve all rights in and to the work. Use of this work is subject to these terms. Except as permitted under the Copyright Act of 1976 and the right to store and retrieve one copy of the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon, transmit, distribute, disseminate, sell, publish or sublicense the work or any part of it without McGraw-Hills prior consent. You may use the work for your own noncommercial and personal use; any other use of the work is strictly prohibited. Your right to use the work may be terminated if you fail to comply with these terms.

THE WORK IS PROVIDED AS IS. McGRAW-HILL AND ITS LICENSORS MAKE NO GUARANTEES OR WARRANTIES AS TO THE ACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUDING ANY INFORMATION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTHERWISE, AND EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. McGraw-Hill and its licensors do not warrant or guarantee that the functions contained in the work will meet your requirements or that its operation will be uninterrupted or error free. Neither McGraw-Hill nor its licensors shall be liable to you or anyone else for any inaccuracy, error or omission, regardless of cause, in the work or for any damages resulting there from. McGraw-Hill has no responsibility for the content of any information accessed through the work. Under no circumstances shall McGraw-Hill and/or its licensors be liable for any indirect, incidental, special, punitive, consequential or similar damages that result from the use of or inability to use the work, even if any of them has been advised of the possibility of such damages. This limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or otherwise.

For Beka

Every once in a while, a major shock leads people to review the continued relevance of conventional wisdom, and every once in a while, the result is an evolution in thinking that anchors the emergence of a new conventional wisdom. Those who understand and prepare for such a possibility may gain important first-mover advantages in portfolio management, risk mitigation, and conceptual analysis.