This book's title
is wrong. It is not a book about valuing fixed income futures. It is a book for
traders—and a wonderful book at that. It targets experienced traders who are familiar with concepts such as Libor or repo but may
be new to trading fixed income futures. Anyone entering these markets for the
first time may be confused about two issues:
cheapest-to-deliver
(CTD) in the Treasury bond futures market, and
convexity
bias in the Eurodollar futures market.
David Boberski is
head of fixed income strategy at Bear Stearns. He knows his stuff, and he does
an excellent job of explaining both of the above concepts—not only intuitively,
but with the level of depth a trader needs. He also explores many other topics, including Eurodollar strips, the TED spread, and
implied volatilities of options on futures.
Contents
1. Treasury Futures: Language of the Basis
2. Eurodollar Futures
3. Treasury and Eurodollar Spreads
4. Building an Event Model to Price Options
For traders, the
book offers wonderful, practical advice that wouldn't easily
fit into a financial engineering or risk model. An example is the discussion of
volatility mapping. A trader should anticipate future volatility based on scheduled
events, like upcoming Federal Open Market Committee (FOMC) meetings. Another
example is the widespread use of options on Treasury futures to hedge the CTD
option embedded in the futures.
The author
knows trading and not math. For example, his definition of
heteroskedasticity is peculiar. Financial
engineers or risk managers might be frustrated by the book's lack of formulas.
The author points out that there are analytics for handing the math. That is all right
for traders who use the analytics, but not for the financial engineers who need to
code them! Still, this doesn't mean financial engineers or risk managers won't
appreciate the book. It is wonderfully informative. Also, its discussions are
thorough enough that a quantitative professional should be able to derive
appropriate formulas.
While the book
isn't technical, it is deep. You will want to slow down and read carefully to
understand the author's insights. It is a wonderful book for traders, in the
tradition of Baird (1993) and Taleb (1996).
Buy it! [December 22, 2006]
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cheapest-to-deliver
(CTD) in the Treasury bond futures market, and