Chapter 8: Interest Rate Risk and Return Analysis

In this section

• Sources of Bond Return and Reinvestment Risk
  Sources of Bond Return and Reinvestment Risk (CFA Level 1): Breaking Down the Sources of Bond Return, Coupon Income, and Reinvestment of Coupon Income. Key definitions, formulas, and exam tips.
• Duration Measures (Macaulay, Modified, Effective)
  Duration Measures (Macaulay, Modified, Effective) (CFA Level 1): Macaulay Duration, Conceptual Underpinnings, and Formula and Calculation. Key definitions, formulas, and exam tips.
• Convexity and Price Sensitivity Estimates
  Convexity and Price Sensitivity Estimates (CFA Level 1): Revisiting Duration vs Convexity, Positive Convexity, and Negative Convexity. Key definitions, formulas, and exam tips.
• Key Rate Duration and Empirical Duration
  Key Rate Duration and Empirical Duration (CFA Level 1): Understanding Key Rate Duration, Why Conventional Duration Isn’t Always Enough, and Mechanics of Key Rate Duration. Key definitions, formulas, and exam tips.
• Option-Adjusted Spread (OAS) and Bonds with Embedded Options
  Option-Adjusted Spread (OAS) and Bonds with Embedded Options (CFA Level 1): Understanding the Basics of OAS, Why OAS Matters for Bonds with Embedded Options, and Decomposing the Elements of a Bond’s Yield. Key definitions, formulas, and exam tips.
• Interest Rate Risk Management Strategies
  Interest Rate Risk Management Strategies (CFA Level 1): Understanding the Nature of Interest Rate Risk, Defensive vs. Opportunistic Approaches, and Duration Matching and Immunization. Key definitions, formulas, and exam tips.
• Negative Interest Rate Environment: Implications and Risk
  Negative Interest Rate Environment: Implications and Risk (CFA Level 1): Context and Background, How Negative Rates Happen, and Mechanics of Bond Valuation Under Negative Rates. Key definitions, formulas, and exam tips.
• Scenario Analysis and Stress Testing for Rate Risk
  Scenario Analysis and Stress Testing for Rate Risk (CFA Level 1): Understanding Scenario Analysis, Mechanics of a Scenario Analysis, and Stress Testing as an Extension of Scenario Analysis. Key definitions, formulas, and exam tips.
• Risk-Neutral Valuation and Rates Modeling
  Risk-Neutral Valuation and Rates Modeling (CFA Level 1): Key Concepts in Risk-Neutral Valuation, Risk-Neutral World, and Arbitrage-Free Pricing. Key definitions, formulas, and exam tips.
• Leverage Impact on Bond Portfolio Risk
  Leverage Impact on Bond Portfolio Risk (CFA Level 1): Basic Concepts of Leverage in Bond Portfolios, Duration Amplification, and Common Forms of Leverage. Key definitions, formulas, and exam tips.
• Fixed-Income Performance Attribution and Risk Decomposition
  Fixed-Income Performance Attribution and Risk Decomposition (CFA Level 1): Performance Attribution: Foundations, Building Blocks of Attribution, and Top-Down vs. Bottom-Up. Key definitions, formulas, and exam tips.
• Portfolio Style Analysis and Factor-Based Return Drivers
  Portfolio Style Analysis and Factor-Based Return Drivers (CFA Level 1): Understanding Style Analysis in Fixed Income, Key Purposes of Style Analysis, and Common Fixed-Income Styles. Key definitions, formulas, and exam tips.
• Advanced Hedging Strategies Using Interest Rate Derivatives
  Advanced Hedging Strategies Using Interest Rate Derivatives (CFA Level 1): Role of Advanced Interest Rate Derivative Strategies, Key Instruments for Hedging Interest Rate Risk, and Interest Rate Futures. Key definitions, formulas, and exam tips.
• Performance Measures for Fixed-Income Hedge Funds
  Performance Measures for Fixed-Income Hedge Funds (CFA Level 1): Foundations of Fixed-Income Hedge Fund Strategies, Common Performance Measures, and Annualized Return and Volatility. Key definitions, formulas, and exam tips.
• Liability-Driven Investing (LDI) and Immunization Strategies
  Liability-Driven Investing (LDI) and Immunization Strategies (CFA Level 1): Liability-Driven Investing (LDI), Surplus Volatility, and Practical Note for Pension Funds. Key definitions, formulas, and exam tips.
• Spread Risk and Basis Risk in Fixed-Income Portfolios
  Spread Risk and Basis Risk in Fixed-Income Portfolios (CFA Level 1): Understanding Spread Risk, Measuring Spread Risk, and Understanding Basis Risk. Key definitions, formulas, and exam tips.