Fixed Income



This chapter starts by reviewing some pertinent aspects of fixed income, including discount bonds, coupon bonds with fixed and variable coupon payments, interest rate swaps, Macaulay, modified and dollar durations, and convexity. The chapter then delves into a host of fixed income strategies, including detailed mathematical descriptions. These strategies include bullets, barbells, duration-targeting strategies such as bond ladders, bond immunization both by matching duration and convexity, butterflies with various weighting schemes such as dollar-duration-neutral butterfly, fifty-fifty butterfly, regression-weighted butterfly, and maturity weighted butterfly, factor-based strategies including value factor, carry factor and low-risk factor, which is based on the low-risk anomaly whereby lower-risk bonds tend to outperform higher-risk bonds on risk-adjusted basis, “rolling down the yield curve” trading strategies, yield curve spread strategies such as flatteners and steepeners, credit default swap (CDS) basis arbitrage, and swap-spread arbitrage.


Discount bond Coupon bond Fixed rate Floating rate Interest rate swap Macaulay duration Modified duration Dollar duration Convexity Bullet Barbell Duration-targeting strategies Ladder Bond immunization Butterflies Value factor Carry factor Low-risk factor Low-risk anomaly Rolling down the yield curve Yield curve spread strategies Flattener Steepener CDS basis arbitrage Swap-spread arbitrage 


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Authors and Affiliations

  1. 1.Quantigic Solutions LLCStamfordUSA
  2. 2.Universidad del CEMABuenos AiresArgentina

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