Alexander Düring - Fixed Income Trading and Risk Management: The Complete Guide

1. Chapter 1
2. Chapter 4
3. Chapter 13
4. Chapter 18
5. Chapter 19
6. Chapter 24
7. Chapter 25
8. Chapter 28
9. Chapter 29

1. Chapter 2
2. Chapter 4
3. Chapter 5
4. Chapter 6
5. Chapter 9
6. Chapter 10
7. Chapter 11
8. Chapter 12
9. Chapter 14
10. Chapter 15
11. Chapter 16
12. Chapter 17
13. Chapter 18
14. Chapter 19
15. Chapter 20
16. Chapter 21
17. Chapter 22
18. Chapter 23
19. Chapter 24
20. Chapter 25
21. Chapter 26
22. Chapter 27
23. Chapter 28
24. Chapter 29
25. Chapter 30
26. Chapter 31
27. Chapter 32
28. Chapter 33
29. Chapter 35
30. Chapter 37
31. Chapter 38

Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers' professional and personal knowledge and understanding.

The Wiley Finance series contains books written specifically for finance and investment professionals as well as sophisticated individual investors and their financial advisors. Book topics range from portfolio management to ecommerce, risk management, financial engineering, valuation and financial instrument analysis, as well as much more.

For a list of available titles, visit our Web site at www.WileyFinance.com.

ALEXANDER DRING

This edition first published 2021

2021 John Wiley & Sons, Ltd

Registered office

John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United Kingdom

For details of our global editorial offices, for customer services and for information about how to apply for permission to reuse the copyright material in this book please see our website at www.wiley.com.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher.

Wiley publishes in a variety of print and electronic formats and by printondemand. Some material included with standard print versions of this book may not be included in ebooks or in printondemand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com.

Designations used by companies to distinguish their products are often claimed as trademarks. All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners. The publisher is not associated with any product or vendor mentioned in this book.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. It is sold on the understanding that the publisher is not engaged in rendering professional services and neither the publisher nor the author shall be liable for damages arising herefrom. If professional advice or other expert assistance is required, the services of a competent professional should be sought.

Library of Congress CataloginginPublication Data is Available:

ISBN 9781119756330 (hardback)

ISBN 9781119756354 (ePub)

ISBN 9781119756347 (ePDF)

Cover Design: Wiley

Cover Image: Husjak/Shutterstock

Set in 10/12pt, STIXTwoText by SPi Global, Chennai, India

Source: ALEXANDER DRING

This book about fixed income has been inspired by over two decades of work in the market from offices in London, Frankfurt and Tokyo. During this time, the author had the good fortune to be close to, and sometimes involved in, an eclectic mix of events. Although working for a large investment bank and the European Central Bank has made it possible to collect this experience, the book does not represent the views of either. Any opinions about central banking should in particular not be taken as those of the Eurosystem.

This book is also inspired by a building, namely the British Museum in London, a detail of which is pictured above. This inspiration has three aspects. The first is that the architecture of the building cannot be understood by looking only at its historic base, or only at Sir Norman Foster's modern additions. Fixed income markets can similarly not be properly understood by considering only their conventions, or only the modern mathematical apparatus that has been created to analyse them. Although this book will present complex mathematics determining the risk characteristics of various instruments, some design features of these instruments are archaic. These features remain today for no better reason than that there was never a need to change them.

Second, the museum is open to all and free in principle, although a small donation is encouraged. Children can walk in and experience artefacts that once were created for the exclusive use of priests and kings. In the world of fixed income, the efforts of statistics offices, central banks, trade associations and others have made a wealth of data available to the general public. Freely available numerical libraries and advances in computers make it possible for everyone to analyse, and learn from that data. Understanding of markets has thus been democratised in ways that were unimaginable even a decade ago. This book, written at home using only freely available and selfdeveloped software, is built on these foundations and encourages such exploration.

Third, the British Museum is not uncontroversial, as are some of the exhibits shown there. The ideas of debt, of trading debt, and of banking are similarly the subject of debate and argument. This book gives some space to this debate although the author would not claim to be neutral in it. The financial industry is part of the service sector, however else it may be portrayed in popular culture. People working in it cannot be oblivious to their role in society, and take it as granted that their actions will not be questioned by others.

Books not only require inspiration, but also enablement. In this case, this has been provided by my family who kindly tolerated the amount of time I spent on writing it and whom I thank for their forbearance. Erwin, Reiko and George at Deutsche, and Julian at the ECB helped me to develop a somewhat nonconformist approach to financial markets. Tamio and Henry at Deutsche Securities Inc. encouraged me to teach, as did Toto, Christophe and Ralph at the ECB. Those who attended these classes and asked questions will hopefully find them answered here. To them, and many not named, go my thanks for making work in financial markets the joy it is.