Bond Pricing and Yield Curve Modeling

Part I. The Foundations: 1. What this book is about; 2. Definitions, notation, and a few mathematical results; 3. Links between models, monetary policy, and the macroeconomy; 4. Bonds: their risks and their compensations; 5. The risk factors in action; 6. Principal components: theory; 7. Principal components: empirical results; Part II. The Building Blocks – A First Look: 8. A preview – a first look at the Vasicek model; 9. Expectations; 10. Convexity – a first look; Part III. No Arbitrage: 11. No arbitrage in discrete time; 12. No arbitrage in continuous time; 13. No arbitrage with state price deflators; 14. No-arbitrage conditions for real bonds; 15. The links with an economics-based description of rates; Part IV. Solving the Models: 16. Solving affine models: the Vasicek case; 17. First extensions; 18. A general pricing framework; 19. The shadow rate: dealing with a near-zero lower bound; Part V. The Value of Convexity: 20. The value of convexity; 21. A model-independent approach to valuing convexity; 22. Convexity: empirical results; Part VI. Excess Returns: 23. Excess returns: setting the scene; 24. Risk premia, the market price of risk, and expected excess returns; 25. Excess returns: empirical results; 26. Excess returns: the recent literature – I; 27. Excess returns: the recent literature – II; 28. Why is the slope a good predictor?; 29. The spanning problem revisited; Part VII. What the Models Tell Us: 30. The doubly-mean-reverting Vasicek model; 31. Real yields, nominal yields, and inflation: the D'Amico–Kim–Wei model; 32. From snapshots to structural models: the Diebold and Rudebush approach; 33. Principal components as state variables of affine models: the PCA affine approach; 34. Generalizations: the ACM model; 35. An affine, stochastic-market-price-of-risk model; 36. Conclusions; 37. References.