Overview

"It is an oft-repeated mantra that ""munis are different"" and that standard analytical tools are irrelevant to managing them. Andrew Kalotay certainly agrees that munis are different. In fact, they are more complex than just about any other bond category. Munis are rich in options, their pricing is tax-dependent, the benchmark curves are comprised of callable bond yields ... and the list goes on. Dr. Kalotay argues that the complexities of munis actually mandate the use of modern fixed income analytics. He demonstrates the necessity for option-adjusted spread (OAS) technology, and exposes the potential pitfalls of risk management by ""yield-to-worst."" And he offers an in-depth discussion of the de minimis tax effect, which depresses the prices of discount munis. The breakthrough concept of tax-neutral OAS analysis accurately captures this effect. Without tax-neutral OAS, discount munis look deceptively cheap, and their durations are grossly underestimated. Risk managers should sit up and take notice."

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9781736594704

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This work is the culmination of Dr. Kalotay's intellectual pursuit of what works and what should be reexamined in the municipal bond market. No shrinking violet, he challenges the orthodoxy and examines its problems from fresh and distinctive angles. The reader will find his contribution an unparalleled resource. - Stephen Winterstein, Head of Municipal Fixed Income, MarketAxess Holdings Inc.

Author Information

Dr. Andrew Kalotay began his career at the famed Bell Laboratories before moving to Salomon Brothers, Wall Street's leading bond house at the time. He started his own fixed income analytics firm in 1990 and also directed the first graduate financial engineering program in the United States, at Polytechnic University. He is a member of the Fixed Income Analysts Society Hall of Fame.

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