Has anyone else picked up Siddharta Jha's Interest Rate Markets? At a glance, the book seems pretty intuitive, covering practical concepts while glancing over the math. However, after a closer read of the first two chapters, I've found what appears to be some pretty egregious typos. The formula for duration is wrong and Jha explains that duration decreases when coupons increase because yields decrease, which is false. The proper explanation should be that prices are constant, coupons increase, which causes yields to increase which decreases duration. Also, he claims to use duration and DV01 interchangeably because "both terms stand for modified duration*price" which is just not true. Should I abandon ship now or hope that it gets better as Jha finishes going over the basic bond math
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Just borrowed a copy and will give it a read, does anyone have any better recommendations for fixed income books and yield curve relative value strategies? Cheers.
I know someone who read like hundreds of finance books in 4 years, and he said this is actually a pretty good book. Not sure about the typos though.
For a beginner who wants to understand the scope of fixed income, I think it's okay. Unlike other books, that starts off with the math portion without really explaining what it really means. I agree that this book is elementary.
Jha's book is good, not as in-depth as Fabozzi or Corb, but still sits on my desk. In the industry, we use one kind of duration - modified or DV01. Everyone uses DV01 and duration interchangeably. Macauley duration really has no practical use, but it is important to know that it represents the weighted-average time to cash flow recovery, with weights being equal to PV of each cash flow.
And you are right - in certain cases, Jha explains certain concepts quickly and they can be unclear - however he writes well, and has clearly mastered fixed income markets; he wrote the book in his 30s while at JP, very impressive. All the books that you read should be complemented with others, always strive to read and learn as much as possible.
I am currently reading Jha and you are spot on. He gives an intuitive explanation on all the products with hardly any maths to back it up just like he mentioned in the first chapter of the book.
I'm more interested in options and am reading Jha just to have an overview of interest rate markets. So, what book would you suggest to follow up after Jha to get a better understanding?
Howard Corb: Interest swaps and their derivatives Sheldon Natenberg: Option vol and pricing (read this first)
I’m still a huge advocate of Bodie Kane 10th edition. Most finance programs use it for juniors level finance courses. It covers the fundamentals of Macauley DUR, Modified DUR, and the fundamentals for understanding portfolio management. Highly recommend, it’s a favorite.
Not sure if these are typos, just a difference in convention. As some have mentioned before me, a lot of the time in finance and especially trading, different people are just using different definitions. I'm definitely not using what I learned in the classroom on the desk and vice versa.
I do not believe that his explanation is entirely wrong. For me, the most intuitive way to think about duration and coupon rates: coupons increase (so your bond looks less like a zero-coupon bond, which has highest IR risk/face), more cash flows are closer to time-0, duration decreases as you're less sensitive to IR risk. I'd be hesitant to factor in the relationship to yield as that can complicate analysis when considering more exotic instruments.
Coupon is fixed, yields/rates change
Think about duration/dv01, whatever, as the the PV of a 1bp annuity. As rates fall, the PV of annuity cash flows rise and vice versa. The reason why a zero's duration = maturity is because there are not any cash flows paid other than par at maturity
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