Abstract
This chapter introduces arbitrage as a tool for replicating and valuing riskless bonds. Similar tools are discussed for portfolio dedication (exact matching or laddering) programs. Immunization and convexity are derived and offered as essential fixed income portfolio management tools. The term structure of interest rates is carefully discussed, with emphases on bootstrapping and simultaneous estimation of spot and forward rates with coupon bonds. FX arbitrage is introduced along with parity conditions and the International Fisher effect. The chapter concludes with a discussion and illustrations of hedging exchange exposure.
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