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Bond Pricing and Yield Curve Modeling
A Structural Approach


  • Date Published: June 2018
  • availability: In stock
  • format: Hardback
  • isbn: 9781107165854

£ 64.99

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About the Authors
  • In this book, well-known expert Riccardo Rebonato provides the theoretical foundations (no-arbitrage, convexity, expectations, risk premia) needed for the affine modeling of the government bond markets. He presents and critically discusses the wealth of empirical findings that have appeared in the literature of the last decade, and introduces the 'structural' models that are used by central banks, institutional investors, sovereign wealth funds, academics, and advanced practitioners to model the yield curve, to answer policy questions, to estimate the magnitude of the risk premium, to gauge market expectations, and to assess investment opportunities. Rebonato weaves precise theory with up-to-date empirical evidence to build, with the minimum mathematical sophistication required for the task, a critical understanding of what drives the government bond market.

    • Presents a treatment of term-structure modeling that includes both the real-world and risk-neutral measures, allowing the reader to ask fundamental questions about bonds
    • Critically discusses important models used by practitioners, central bankers, academics, and investors, enabling the reader to understand why these models give different answers, and encouraging them to devise their own models
    • Minimal mathematics allows the reader to concentrate on the economic and financial content of the model, rather than mathematical equations
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    Reviews & endorsements

    'Rebonato has produced a unique and intensely engaging treatment of modern dynamic yield curve modeling: where we've been, where we are, where we're going, and why. Without slipping into spineless eclecticism - indeed he stays far from it, emphasizing a structural approach throughout - he beautifully blends rigor with penetrating intuition, seriousness of purpose with entertaining quips and quotes, historical awareness with forward-looking insight, and crucially, statistics with theory.' Francis X. Diebold, University of Pennsylvania

    'I have been waiting for Riccardo to write this book for years, and finally the wait is over! This book represents a brilliant combination of theory and practice as used by practitioners in a lucid yet rigorous manner. I can confidently say that the depth of perception that this book brings will be indispensable for anyone interested in understanding bonds and the yield curve, especially in today's market environment.' Vineer Bhansali, LongTail Alpha

    'Rebonato's book integrates practical aspects of yield curve investing with the most up-to-date research. It is a superb synthesis for anyone interested in rigorous analysis of these capital markets, which are among the most important globally.' Ian Cooper, London Business School, University of London

    'Rebonato takes readers on a thought-provoking journey that will elevate their thinking about term-structure modeling. In this journey, they will likely become increasingly familiar and comfortable with some simple mathematical techniques that are new to them.' Enterprising Investor, CFA Institute (

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    Product details

    • Date Published: June 2018
    • format: Hardback
    • isbn: 9781107165854
    • length: 776 pages
    • dimensions: 235 x 163 x 20 mm
    • weight: 1.28kg
    • availability: In stock
  • Table of Contents

    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.

  • Author

    Riccardo Rebonato, Pacific Investment Management Company (PIMCO), California
    Riccardo Rebonato is Professor of Finance at EDHEC Business School, France. He has been Global Head of Fixed Income and FX Analytics at Pacific Investment Management Company, LLC (PIMCO), and Head of Research, Risk Management and Derivatives Trading at several major international banks. He has previously held academic positions at Imperial College of Science, Technology and Medicine, University of London and University of Oxford, and has been a Board Director for the International Swaps and Derivatives Association (ISDA). He currently is a Professorial Visiting Fellow at the University of Edinburgh, and sits on the Board of Global Association of Risk Professionals (GARP). He is the author of several books and articles in finance and risk management, including Portfolio Management under Stress (Cambridge, 2014).

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