Customer Reviews

Fixed Income Securities: Tools for Today's Markets (Wiley Finance)

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Bruce Tuckman's Fixed Income Securities deserves its reputation earned from both academics and practitioners as a practical yet rigorous introduction to fixed income markets. Written by a well-respected practitioner, Tuckman's book bridges the gap between the elementary, dry, and overly detailed books on the subject (if you think I'm referring to books in the Fabozzi tradition, you're correct) and the more quantitatively rigorous books written from either an quantitative analyst/developer's point of view.

In any event, Tuckman address topics of importance to everyone in these markets, from quants to traders in various bond and interest rate markets. He starts with the basic topics that any advanced introduction to Fixed Income markets should contain, such as basic measures of yield and risk (basic discounting conventions and "Z"-factors, duration/DV01, convexity) as well as the spot and forward market rates.

He also covers basic topics in applied modeling, such as curve fitting and parameter estimation - advanced undergrads and MBA students can easily implement the basic ideas in Excel to gain an intuitive understanding of rigorous fixed income analysis. A benefit of this approach, based on my standpoint as a practitioner, is that students need to realize the lack of good data in fixed income markets is a tremendous obstacle for pricing and risk analysis. Emphasizing this topic early keeps the audience mindful that data issues and statistical techniques used to deal with them are certainly not trivial.

In the middle of the book, Tuckman introduces modern fixed-income modeling methods by using the standard binomial approach to demonstrate the basic princples of risk-neutral pricing and option valuation. He also covers the trinomial approach, which while more complicated, is more valuable to practitioners calibrating their models to incorporate mean-reverting effects, as well as the standard short-rate (affine) models. While this book does have a few stochastic differential equations, their inclusion is meant only to encourage intuitive thinking about the interest rate processes and their connection with the tree framework.

More advanced topics, written to minimize the use of quantitative methods, include term structure volatility and is designed to teach the necessary ideas and conventions one needs before tackling modern Market Models such as BGM/J, as well as estimation techniques, options/swaps, and pricing and risk of MBS. Despite an academic background, Tuckman is careful to emphasize both the language and quantitative "hand-waving" done by traders and other practitioners who work in real markets. He also includes "case studies" that share his experiences on the trading floor in the context of the relevant material.

I would strongly recommend this book for those wishing to gain an intuitive understanding of the issues facing practitioners from a quantitative viewpoint. The book does not address many important topics, even at a rudimentary level, such as credit risk and other structured products. Nonetheless, Tuckman's book offers a relatively complete, rigorous introduction to fixed income analysis at a basic level - there are many great books of varying degrees of rigor and detail that cover credit risk, securitization, etc. For those familiar with the ideas in Tuckman and that have a solid grasp of the machinery of mathematical finance, Brigo/Mercurio, Cairns, and Rebonato have books that cover modern Market Models in more detail; the level of mathematical sophistication necessary to understand these models and the technical skill to implement them extends beyond the basic calculus and Excel skills needed for Tuckman's book.

As a parting shot, I'll note the reviewer that criticized Tuckman for being an "adjunct" professor. Tuckman was a prop trader at Salomon before making MD at a top bank, and is well-respected by academics for his practical knowledge of Fixed Income markets - hence the glowing endorsements from Longstaff and Musiela on the back cover. Tuckman's book isn't desgined to be a survey of academic literature, but a guide for students, fixed income PM's, traders, and risk managers on the quantitative aspects of real-world practice - most of the fixed-income universe doesn't know, need to know, or care about no-arbitrage models, stochastic calculus, or advanced statstical methods.

Tuckman's book is a lucid introduction to Fixed Income securities. It is an ideal mix of theory and institutional details.The book does not assume high mathematics knowledge, except for basic Algebra. Through the first few chapters Tuckman guides the reader through discount factors, spot rates, forward rates, Yield To maturity , duration and convexity; and with very good introductions to curve fitting, hedging and Term structure models.Part three, in my opinion is the highlight of the book, which is a detailed exposition of Term structure models.If there are any weaknesses in the book, I think they are in Mortgage Backed Securities(MBS). The treatment of MBS seems a little light. Also, the practice problems are fairly straightforward. But, the book is full of examples and practical case-studies. On the whole, this is a very good book,specially for those who are new to Fixed-Income securities.

This book gives basics of fixed income securities in a very intuitive way. It first explains building blocks for fixed income securities. I have studied these topics in pricing and finance theory, and then I bought this book. I couldn't imagine a better explanation in such a clear way for fixed income securities. I suggest this book to everybody who wants to understand the fixed income securities. I think it helps anybody who is interested in quantitative modeling fixed income securities and who is interested in trading such securities.

It first gives the basic background, the relative pricing of fixed income securities and fixed cash flows. It then explains the price sensitivity and hedging. The author has given a good explanation for term structure models. The last part of the book is dedicated to some securities: repo, forward contracts, interest rate swaps, eurodollar and fed funds, fixed income options, mortgage-backed securities and note and bond futures.

Books like Tuckman's are hard to come by. I'm currently preparing for the FRM certification exam and this is a recommended text. Of all the books listed as required readings for the exam, this is the one I have learned the most from. The first 4 chapters are worth the book price by themselves - from a clear understanding of discount factors to building rate curves - Tuckman always takes pains to illustrate real-world examples, but never skips essential math. I think the section on derivatives has by far the clearest explanation of the oft-used but little understood notion of risk-neutral pricing that I have seen to date. I'm still in part 2, but will take my time and re-read if necessary.

The only other remotely comparable book is by Martellini, Priaulet et al

Reading the book requires a little bit understanding of fixed income market. I consider it as the best introductory textbook on fixed income securities. It has very little "monster formula" comparing with other very in-depth books covering a lot inerest rate models. Apparently, you don't have to know stochastic calculus to read this book.

Pound for pound, this is one of the best books I have ever read on fixed-income. Sections on arbitrage arguments for valuation, and binomial lattice (tree) building for option pricing are clear, succinct and practical. They include both theory and working examples that the practitioner can use for actual model-building

On the introductory level, this is perhap the best book in the market for fixed income security analytics. It does not have a lot of market convention details covered in Handbook of Fixed Income Securities by Fabbozi. However, for someone who just wants to know commonly how fixed income securities are valuated "in a nutshell," this is an excellent book to start reading.

To add to longhorn24's excellent detailed review,

a) This is not a book about term structure modeling, but Tuckman ofers a very effective, get-to-the-main-issues introduction.

b) Another reviewer has noted that he would buy the book for the four first chapters (discussing basic bond math) alone, and I agree. Even where the subject is familiar, Tuckman impresses with concise and to-the-point presentation, and his analytical approach, which makes Fabozzi look superficial.

PS. Be sure to consider the book by Martellini et al.

I have the 2nd edition and have found it to be ridiculously comprehensive. The text is well-written and organized (I find it better than the Fabozzi texts which usually have many different people contributing, therefore naturally being less fluid and organized). This is by far one of the best fixed-income books available right now--period.

The text is pretty heavy on quant material, however, it's written from a practitioner's perspective so I've found it to be very helpful at work.

After reading stochastic calculus for finance II by Shreve, another great textbook, I felt I needed another textbook more focused toward applications rather than theory. The book will probably not turn you into a fixed income guru but it will certainly give you most if not all the tools you need to become a guru. For physicists, engineers and mathematicians looking for a career in quantitative finance, this textbook is a must read. Read this book if you want a career in the fixed income market. Throughout the book, you will find useful trading cases which, in my opinion, put you right into the trading floor minus the stress of course. Dr Tuckman also provided simple and well thought exercises which help reinforce your understanding of the material.