[Lehman Brothers, Tuckman] Interest Rate Parity, Money Market Baisis Swaps, And Cross-Currency Basis Swaps

Fixed Income Liquid Markets Research

June 2003

Interest Rate Parity, Money Market Basis Swaps, and Cross-Currency Basis Swaps Bruce Tuckman, Pedro Porfirio Because the classic interest rate parity condition requires default-free rates as input, the common practice of using rates derived from swap curves is not valid. This paper derives interest rate parity conditions that depend on basis swap spreads in addition to swap rates.

!"#$%!$& ()*+,-. !"# !% &&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&'()*)++,(),-(+&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&..%/0%.1#2&341 5#6#27 8#9:&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&;;)-<),-=<)-'(*&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& >2#9:/0%.1#2&341 ?@"3% A"3:1#2 &&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&()-(-)+-=)--+-&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&B7"3:1#2/0%.1#2&341

/012+*+1+*34 &+-1+45*4. 6(0-,748 5#6#27 8#9:&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&;;)-<),-=<)-'(*&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& >2#9:/0%.1#2&341 C#77 D0#%EE092F&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&;;)-<),-=<)*(*G&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&1:0#%EE0/0%.1#2&341 H#>9I C%2I%J)59>%6 &&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&;;)-<),-=<)(=*;&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&I1>9>%6/0%.1#2&341

92+4-4.+ :1+4 ;,)4<<*25 6=>&>8 ?@"3% A"3:1#2 &&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&()-(-)+-=)--+-&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&B7"3:1#2/0%.1#2&341 K%9 L.4" &&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&()-(-)+-=)'''=&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& E%9J/0%.1#2&341

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

AB :4.41-?@ P91 C3M4@193:&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&;;)-<),-=<)(-'*&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& Q11334@1/0%.1#2&341 R0%S%9 P90764>&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&;;)-<),-+=);*=<&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&#Q90764>/0%.1#2&341 R22% T#239#"1%&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&;;)-<),-=<)(*<(&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&#239#"/0%.1#2&341 T.@"79 T44I&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&;;)-<),-=<)(-G,&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& /0%.1#2&341

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

Lehman Brothers | LMR Quarterly

LMR Quarterly, vol. 2004-Q2

!"#$%$&# ()#$ *)%+#,- ./"$, .)%0$# 1)&+& 23)4&- )"5 6%/&&768%%$"9, 1)&+& 23)4& L-0?4 $0?MH12 C?C7DCE7CCDC ;%89$F#890G)"H:$IG)"F9/G E4)-, E,-I*-*, C?C7DCE7JKEL 4$5%/F4/%<+%+/H:$IG)"F9/G

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

C>

!D%&&9! 9#$(:(&$ :%$( E%:9$F

V27%@%67 @#7% W#@97X 96 #2 #@B97@#F% #@F"1%27 "6%I 74 I%@9>% E4@Y#@I E4@%9F2 %S3.#2F% @#7%6& A4 I%63@9B% 7.% 30#6693 E4@1 4E 7.96 #@F"1%27Z I%E92% 7.% E4004Y92F >#@9#B0%6[

A < [ TW47 %S3.#2F% @#7% 4E I400#@6 W%@ "297 4E E4@%9F2 3"@@%23X& / [ ; )X%#@ I%E#"07)E@%% I400#@ 6W47 \9%Z J%@4)34"W42] @#7% 4E 927%@%67& /% [ ; )X%#@ I%E#"07)E@%% E4@%9F2 6W47 \9%Z J%@4)34"W42] @#7% 4E 927%@%67&

D [ K4@Y#@I %S3.#2F% @#7% 4E I400#@6 W%@ "297 E4@%9F2 3"@@%23X E4@ I%09>%@X 92 ; X%#@6& 84Y 34269I%@ 7.% E4004Y92F 7#B0% 4E 74I#X^6 7@#26#379426 \ K9F"@% (]& V7 96 #66"1%I 7.@4"F.4"7 7.#7 7.%@% 96 24 34"27%@W#@7X I%E#"07 @96: 92 E4@Y#@I 4@ 6Y#W 3427@#376& A*50-4 C>

$@4 1-G*+-154 1-50H42+ I,- ?<1..*? *2+4-4.+ -1+4 71-*+J

$-12.1?+*,2 1/%%/3

A < 5/::)%&

2$:: A < 5/::)%&- ;8,
$,)1J6K8 +

A <

$*H4 − A<

!

6K8

$,)1J 6A528

!

B

June 2003

!

6A528

;

− A <

>? 7? ;

D (( + /% )

2$::
$*H4

(( + / )

!"@$&#
A/#):

-

+

B

;

% ) (( + / −

B

;

(( + /% ) B

#$% &'($)*+ ($&,- .*%/*0- 1-%++),2 3%4 5),%6&2 5%&, 7&'8 7&*&/0+2 &,/ .%0 9$)' :)* $%8;:'8 <)==%,(+ &,/ +'>>%+(0),+? 7%/*) 7)*:0*0) @)*-+ ), ($% .A #*&/0,> 3%+-? C)',(%*;&*(D /%:&'8( *0+- 0+ 8&*>%8D =0(0>&(%/ ED ($% :0,&,<0&8 +)',/,%++ ): ($% %,(0(0%+ 0,4)84%/2 ED *%F'0*%=%,(+ () ;)+( <)88&(%*&8 E&+%/ ), <$&,>0,> =&*-%( 4&8'%+2 &,/ ED ($% 0=;)+0(0), ): <*%/0( 80,%+?

Please see important analyst certifications at the end of this report.

2


Reprinted from the LMR Quarterly, vol. 2004-Q2

?%3#"6% 7.%6% 7@#26#379426 2%97.%@ F%2%@#7% 24@ @%_"9@% 3#6. 74I#XZ @"092F 4"7 #@B97@#F% @%_"9@%6 7.#7 7.%X 2%97.%@ F%2%@#7% 24@ @%_"9@% 3#6. #7 791% ; %97.%@& C#7.%1#793#00XZ − A<

;

(( + / )

+

;

D (( + /% ) = <

\(]

T40>92F E4@ 7.% E4@Y#@I W@93%Z ;

(( + / ) D = A < ; % ) (( + /

\-]

A.% W@4B0%1 Y97. #WW0X92F 7.96 30#6693 #@F"1%27 92 W@#3793% 96 7.#7 1#@:%7 W#@7939W#276 4B6%@>% 6W47 @#7%6 91W09%I E@41 6Y#W @#7%6Z 247 I%E#"07)E@%% 6W47 @#7%6& ?%3#"6% 6Y#W @#7%6 #@% E9S%I @#7%6 7.#7 #@% E#9@ #F#9267 *)1427. OV?àZ Y.93. .#6 # B"907)92 3@%I97 W@%19"1Z 6W47 @#7%6 I%@9>%I E@41 6Y#W @#7%6 #@% 744 .9F. 74 B% "6%I 92 %_"#7942 \-]& A.% E4004Y92F 6%37942 I%63@9B%6 .4Y 142%X 1#@:%7 B#696 6Y#W6 092: @#7%6 3427#9292F I9EE%@%27 3@%I97 W@%19"16&

N>

;"#(F ;%:O($ L%&9& &P%E&

R 142%X 1#@:%7 B#696 6Y#W 96 #2 %S3.#2F% 4E E04#792F @#7% W#X1%276 B#6%I 42 42% 92I%S E4@ E04#792F @#7% W#X1%276 B#6%I 42 #247.%@ 92I%S& O9_"9I %S#1W0%6 9230"I%[ K%I K"2I6 >6& *) 1427. OV?àb A)?9006 >6& *)1427. OV?àb ()1427. >6& *)1427. OV?àb ()1427. >6& =) 1427. OV?àb #2I *)1427. >6& =)1427. OV?à& A#:92F 42% %S#1W0% # B97 E"@7.%@Z 42 C#@3. ;Z -<<*Z # 7@#I%@ 19F.7 .#>% #F@%%I 74 %S3.#2F% ()1427. OV?à W0"6 (&+ B#696 W49276 1427.0X E4@ =)1427. OV?à 6%19#22"#00X E4@ 7.@%% X%#@6& M4269I%@ #2 91#F92#@X B#696 6Y#W 74 %S3.#2F% 7.% I%E#"07)E@%% @#7% 4E 42% 7%@1 E4@ 7.% I%E#"07)E@%% @#7% 4E #247.%@ 7%@1Z %FZ 74 %S3.#2F% 7.% I%E#"07)E@%% ()1427. @#7% 1427.0X E4@ 7.% I%E#"07)E@%% *)1427. @#7% _"#@7%@0X& RWW%2I9S ( 6.4Y6 7.#7 7.96 #2I #00 69190#@ 6Y#W6 6.4"0I 7@#I% E0#7& V27"979>%0XZ 7.% I%E9297942 4E 7.% 7%@1 67@"37"@% 4E I%E#"07)E@%% @#7%6 96 W@%396%0X 7.#7 B4@@4Y%@6 #2I 0%2I%@6 #@% 92I9EE%@%27 B%7Y%%2 ()1427. 142%X @400%I 4>%@ # _"#@7%@ #2I *)1427. 142%X& c209:% 7.%6% 91#F92#@X 6Y#W6 4E I%E#"07)E@%% @#7%6Z 4B6%@>%I 142%X 1#@:%7 B#696 6Y#W6 %S3.#2F% @#7%6 Y97. # B"907)92 3@%I97 W@%19"1& K"@7.%@14@%Z 7.% 3@%I97 W@%19"1 B"907 9274 # W#@793"0#@ @#7% 92I%S I9EE%@6 E@41 7.#7 B"907 9274 #247.%@& K4@ %S#1W0%Z 7.% 3@%I97 @96: 4E # *) 1427. 04#2 96 F@%#7%@ 7.#2 7.#7 4E @40092F 4>%@ ()1427. 04#26 E4@ # _"#@7%@& !%23%Z 74 30%#@ 1#@:%76Z *)1427. OV?à 1"67 B% 6%7 6"3. 7.#7 976 3%@7#92 @%3%9W7Z 9%Z 976 @%3%9W7 Y97. 24 W4669B9097X 4E I%E#"07Z .#6 F@%#7%@ >#0"% 7.#2 7.% 3%@7#92 @%3%9W7 4E ()1427. OV?à 4>%@ 7.% 34@@%6W42I92F _"#@7%@& !%23%Z 92 # B#696 6Y#W Y97.4"7 #2X 34"27%@W#@7X I%E#"07 @96:Z ()1427. OV?à W0"6 # 6W@%#I 96 E#9@ #F#9267 *)1427. OV?à& V7 96 91W4@7#27 74 I96792F"96. B%7Y%%2 7.% W@9392F 4E 04#26 1#I% #7 7.% 92I%S @#7% #2I 7.% W@9392F 4E B#696 6Y#W6& A.% 3@%I97 3.#@#37%@967936 4E M4@W4@#7942 R 19F.7 B% 6"3. 7.#7 97 E#9@0X B4@@4Y6 #7 ()1427. OV?à& T9190#@0XZ 7.% 3@%I97 3.#@#37%@967936 4E M4@W4@#7942 ? 19F.7 B% 6"3. 7.#7 97 E#9@0X B4@@4Y6 #7 *)1427. OV?à& 8%>%@7.%0%66Z #6 #@F"%I 92 7.% W@%>94"6 W#@#F@#W.Z W#@79%6 74 # 6Y#W Y97. 24 34"27%@W#@7X I%E#"07 @96: Y90092F0X %S3.#2F% ()1427. OV?à W0"6 # 6W@%#I >%@6"6 *)1427. OV?à& ?%3#"6% 7.%6% 6Y#W W#@79%6 I4 247 B%#@ #2X 4E 7.% 3@%I97 @96: B"907 9274 7.% 04#2 @#7%6Z 7.%X 044: 74 7.% >#0"% 4E # 3%@7#92 E04Y 4E 42% @#7% #F#9267 7.% >#0"% 4E # 3%@7#92 E04Y 4E 7.% 47.%@ @#7%&

March 2004

3


Q>


!:"&&R!=::(#!F L%&9& &P%E&

R 3@466)3"@@%23X B#696 6Y#W 96 %66%279#00X #2 %S3.#2F% 4E # E04#792F @#7% 247% 92 42% 3"@@%23X E4@ # E04#792F @#7% 247% 92 #247.%@ 3"@@%23X& K4@ %S#1W0%Z 42 C#@3. ;Z -<<* 7.% M#2#I9#2 I400#@ \MRH] 7@#I%I E4@ &=,, cT I400#@6 \cTH] #2I # 7@#I%@ 19F.7 .#>% #F@%%I 74 7.% E4004Y92F 3@466)3"@@%23X B#696 6Y#W[ • •

•

d#X ( MRH #2I @%3%9>% &=,, cTH #7 92979#7942 a%3%9>% *)1427. MHà * W0"6 (< B#696 W49276 42 ( MRH #2I W#X *)1427. cTH OV?à _"#@7%@0X 42 &=,, cTH E4@ 7.@%% X%#@6 a%3%9>% ( MRH #2I W#X &=,, cTH #7 %SW9@#7942

A4 "2I%@67#2I Y.X *)1427. MHà W0"6 (< 96 E#9@ #F#9267 *)1427. cTH OV?àZ 97 96 B%67 74 B%F92 BX 34269I%@92F #2 91#F92#@X 3@466)3"@@%23X B#696 6Y#W %S3.#2F92F # I%E#"07)E@%%Z 4>%@29F.7 MRH @#7% E4@ # I%E#"07)E@%%Z 4>%@29F.7 cTH @#7%& c2I%@ @%0#79>%0X 190I #66"1W79426Z RWW%2I9S - W@4>%6 7.#7 7.96 3@466)3"@@%23X B#696 6Y#W 6.4"0I 7@#I% E0#7& V27"979>%0XZ W#X92F ( MRH 74I#XZ @%3%9>92F 7.% I%E#"07)E@%% MRH @#7% 42 ( MRHZ #2I @%3%9>92F ( MRH #7 %SW9@#7942 96 Y4@7. ( MRH 74I#X& T9190#@0XZ @%3%9>92F &=,, cTHZ W#X92F 7.% I%E#"07)E@%% cTH @#7% 42 &=,, I400#@6Z #2I W#X92F &=,, cTH #7 %SW9@#7942 96 Y4@7. &=,, I400#@6 74I#X& A.%@%E4@%Z B%3#"6% 7.% %S3.#2F% @#7% 96 &=,, cTH W%@ MRHZ 7.% %S3.#2F% 4E 7.%6% E04#792F @#7% 247%6 96 E#9@ 74I#X& c209:% 7.96 91#F92#@X 6Y#W 4E I%E#"07)E@%% @#7%6Z 4B6%@>%I 3@466)3"@@%23X B#696 6Y#W6 %S3.#2F% OV?à @#7%6& A.%@%E4@%Z 42% 1#X 7.92: 4E # 3@466)3"@@%23X B#696 6Y#W 4E OV?à @#7%6 #6 # W4@7E4094 4E 7.@%% 91#F92#@X 6Y#W6[ # 3@466)3"@@%23X B#696 6Y#W 4E 4>%@29F.7Z I%E#"07)E@%% @#7%6b # 142%X 1#@:%7 B#696 6Y#W 4E I400#@ OV?à >%@6"6 I400#@Z I%E#"07)E@%%Z 4>%@29F.7 @#7%6b #2I # 142%X 1#@:%7 B#696 6Y#W 4E E4@%9F2 OV?à >%@6"6 E4@%9F2Z I%E#"07) E@%%Z 4>%@29F.7 @#7%6& 59%Y%I 7.96 Y#XZ 97 B%341%6 30%#@ 7.#7 4B6%@>%I 3@466)3"@@%23X B#696 6Y#W 6W@%#I6 #@96% E@41 7.% I9EE%@%23% B%7Y%%2 043#0 B#696 6W@%#I6Z 7.#7 96Z E@41 7.% I9EE%@%23% B%7Y%%2 7.% 7Y4 7%@1 67@"37"@%6 4E 3@%I97 6W@%#I6& V2 7.% %S#1W0%Z 9E cTH *)1427. OV?à .#6 14@% 3@%I97 @96: 7.#2 *)1427. MHàZ 7.%2Z 92 # 6Y#W Y97. 24 I%E#"07 @96:Z # 67@%#1 4E cTH OV?à Y4"0I B% Y4@7. 14@% 7.#2 # 67@%#1 4E MHà& A.%@%E4@%Z MHà W0"6 # 6W@%#I Y4"0I 7@#I% E#9@ #F#9267 cTH OV?à&

S>

9#$(:(&$ :%$( E%:9$F :(T9&9$(U

A.96 6%37942 I%@9>%6 7Y4 927%@%67 @#7% W #@97X @%0#79426.9W6 Y.93. I%W%2I 42 @#7%6 I%@9>%I E@41 7.% 6Y#W 3"@>% #2I 42 B#696 6Y#W 6W@%#I 0%>%06& K4@ 7.96 W"@W46%Z I%E92% 7.% E4004Y92F >#@9#B0%6& E [ ;4X%#@ I400#@ W#@ 6Y#W @#7% Y97. E9S%I E04Y6 W#9I _"#@7%@0X& E% [ ; )X%#@ E4@%9F2 W#@ 6Y#W @#7% Y97. E9S%I E04Y6 W#9I _"#@7%@0X&

F [ ; )X%#@ I400#@ J%@4)34"W42 6Y#W @#7%&

% [ ; )X%#@ E4@%9F2 J%@4)34"W42 6Y#W @#7%& F G [ *)1427. I400#@ OV?à #7 791% ( & ( G%( [ *)1427. E4@%9F2 OV?à #7 791% ( &

G

March 2004

H%% +%<(0), I?B :)* & /%+<*0;(0), ): C&,&/0&, +$)*(J(%*= *&(%+?

4



< [ R 6Y#W 4E 7.% 4>%@29F.7 I400#@ I%E#"07)E@%% @#7% 96 E#9@ #F#9267 *)1427. I400#@ OV?à

192"6 < & <% [ R 6Y#W 4E 7.% 4>%@29F.7 E4@%9F2 I%E#"07)E@%% @#7% 96 E#9@ #F#9267 *)1427. E4@%9F2 OV?à

192"6 <% & H [ R 6Y#W 4E *)1427. I400#@ OV?à W0"6 H 96 E#9@ #F#9267 *)1427. E4@%9F2 OV?à&

A.% I%@9>#7942 4E 7.% E9@67 W#@97X @%0#79426.9WZ "692F W#@ 6Y#W6Z J%@4)34"W42 6Y#W6Z #2I # *)1427. 3@466)3"@@%23X B#696 6Y#WZ 96 %SW0#92%I 92 K9F"@% -& V27%@91 3#6. E04Y6 #@% #22"#09J%I& a"092F 4"7 #@B97@#F% 4WW4@7"2979%6 91W09%6 7.#7 7.% 791%); I400#@ W#X4EE 96 J%@4Z 9%[ − A<

; (( + H E )(( + F ); − H E  + D (( + F% ) = <  

\*]

T40>92F E4@ 7.% E4@Y#@I @#7%Z ; (( + F ) 

(( + F ) − (  D = A< ( + H   ; ; % E ( + F )   ( ( F + ( )  ;

\;]

A.% 4B>94"6 #I>#27#F% 4E %_"#7942 \;] 4>%@ 7.% 30#6693 W#@97X 342I97942 \-] 96 7.#7 \;] I%W%2I6 42 6Y#W @#7%6 #2I 42 7.% 3@466)3"@@%23X 1#@:%7 B#696 6Y#W 6W@%#I& ?X 3427@#67Z 7.% 30#6693 342I97942 I%W%2I6 42 7 .% F%2%@#00X "24B6%@>#B0% I%E#"07)E@%% @#7%6 4E 927%@%67& R334@I92F 74 7.% I%E92979426 4E E #2I F Z 7.% 7%@1 1"079W0X92F H 92 \;] 96 7.% W@%6%27 >#0"% E#374@ E4@ # 67@%#1 4E _"#@7%@0X W#X1%276 #7 7.% #22"#0 @#7% 4E H & !%23% 7.96 W#@97X @%0#79426.9W 1#X B% @%Y@977%2 #6[ ;

D

=

A<

(( + F )

((

;

+

%) F

[ H ] ( + d5

\+]

Y.%@% d5 [ H ] F9>%6 7.% W@%6%27 >#0"% Q"67 I%63@9B%I& A*50-4 N>

$@4 *2+4-4.+ -1+4 71-*+J 1-50H42+ V*+@ 1 ?-,..R?0--42?J G1.*. .V17 $,)1J 6K8

$-12.1?+*,2 24/# MN

− A <

6%/&&798%%$"9, &3)4

+

*)% &3)4O %$9 <+P$5Q 4), <:/)#+"= /"

A< H E

R$%/79/84/" &3)4O %$9 <:/)#+"= /"

A< (( + H E )

A <

92+4-*H 6K8

$*H4 ! 6K8

$,)1J 92+4-*H 6A528 6A528 >?

− A<

A< H

−

( G( + H )

[ A< H

− A <

7?

A< (( + H E ) G(

− A<

;

;

%) D (( + F

B

(( −

+

B

>?

(( + H E ) (( + F ) − ( % − G (

2$::
March 2004

G%(

E ] G(

R$%/79/84/" &3)4O 4), <:/)#+"=

A/#):

$*H4 ! 6A528

B

B

;

+

%) F

((

−( ;

+

%) F

B

5



A.% 6%342I W#@97X @%0#79426.9W "6%6 # 3@466)3"@@%23X 6Y#W 4E 4>%@29F.7Z I%E#"07)E@%% @#7%6 #2I #2 4>%@29F.7 >%@6"6 *)1427. B#696 6Y#W 92 %#3. 3"@@%23X 9267%#I 4E # 3@466)3"@@%23X 6Y#W 4E *)1427. OV?à @#7%6& ?%3#"6% 3@466)3"@@%23X 6Y#W6 4E 4>%@29F.7Z I%E#"07)E@%% @#7%6 I4 247 7@#I%Z 7.96 6%342I @%0#79426.9W 96 4E 0%66 W@#3793#0 "6% 7.#2 \;] 4@ \+]& !4Y%>%@Z 7.96 6%342I @%6"07 96 "6%E"0 E4@ "2I%@67#2I92F 7.% I%7%@192#7942 4E 7.% *)1427. OV?à 3@466)3"@@%23X B#696 6Y#W 6W@%#I&

%( 74 B% 7.% 4>%@29F.7Z I400#@ #2I E4@%9F2 I%E#"07)E@%% @#7%6 #2I 34269I%@ 7.% 6%7 H%E92% - ( #2I - 4E 7@#26#379426 I%63@9B%I 92 K9F"@% *& a"092F 4"7 #@B97@#F% 4WW4@7"2979%6 @%_"9@%6 7.#7 − A< − A<

(( − < E ) (( + F )

;

− ( + D



 ( + F% ; ) (

−

(<% E% ) ((

F% ) − (  = < ;

+

 

\=]

T40>92F E4@ 7.% E4@Y#@I @#7%Z ;  (( + F ) − (  (( + F ) ( − < ; E (( + F )   D = A < ;   % ; (( + F ) − ( (( + F% ) ( − <% % % ;  E (( + F )   ;

\,]

M41W#@92F \,] Y97. \;] @%>%#06 7.#7 7.% 3@466)3"@@%23X B#696 6Y#W 6W@%#I I%W%2I6 42 7.% @%0#79>% 1#F297"I%6 4E 7.% 142%X 1#@:%7 B#696 6W@%#I6 92 7.%9@ 4Y2 3"@@%239%6& VE 7.% 3@%I97 @96: %1B%II%I 92 7.% I400#@ 3"@>% 96 @%0#79>%0X 0#@F%Z 64 7.#7 < 96 0#@F% @%0#79>% 74 <% Z 7.%2 H 7%2I6 74 B% 2%F#79>% # 2I I400#@ OV?à 192"6 # 6W@%#I 7%2I6 74 B% E#9@ #F#9267 E4@%9F2 OV?à& M42>%@6%0XZ 9E 7.% 3@%I97 @96: %1B%II%I 92 7.% E4@%9F2 3"@>% 96 F@%#7%@Z 64 7.#7 <% 96 0#@F% @%0#79>% 74 % #2I I400#@ OV?à W0"6 # 6W@%#I 7%2I6 74 B% E#9@ #F#9267 E4@%9F2 OV?à&

March 2004

6

2 Q 3 0 0 2 . l o v , y l r e t r a u Q R M L

7   

(

−

  

(

−

;

)

F

%

8 4 2 5 H A * $ 6 !

+

? >

(

(

   )

E <

% %

−

(

(

;

)

F

%

+

(

(

   )

E <

%

B

%

(

+ ; )

F

%

+

(

(

−

<

%

−

H 8 * - 2 4 5 + A 2 6 9

(

(

-

%

G

%

+ (

-

%

−

J 1 ) , $

8 2 5 A 6

? >

(

G

%

)

E % < %

(

−

<

%

(

G

%

)

E <

%

B

%

−

(

(

−

? 7

B

     

(

−

 

(

−

; )

F

!

y l r e t r a u Q R M L |

s r e h t o r B n a m h e L

. 7 1 V . . * . 1 G + 4 M 1 H J 4 2 , H @ + * V + 2 4 H 0 5 1 J + * 1 7 4 + 1 + . 4 4 + 2 * 4 @ $

> Q 4 0 5 * A

4 8 K H 6 * $

+

(

<

A

(

 

−

)

E < −

(

(

<

A

−

; )

F

%

+

(

(

   )

E <

% %

(

− ; )

F

%

+

(

(

  

D +

<

A <

)

H * - 8 4 K 6 + 2 9

<

A ( -

−

− (

G (

− <

A ( -

+

J 1 8 ) K , 6 $

(

G ]

E <

A < [

+ <

A <

(

G )

E <

B

−

(

(

<

A

−

<

A

<

A

−

+

B

E <

% %

2 , * + ? 1 . 2 1 $

N M # / 4 2

4 ) 3 & , 9 " $ % % 8 9 7 & & / % 6

& 4 ) 3 & I # " / G 7 U F & @ T Q S

5 " )

" % / E < & % E 4 − ) ( < 3 5 A & " " " ) / / & 4 E 4 8 ) / < 3 9 7 − & / % % ( ) $ * R A <

)

(

<

5 % ) 3 % / < " = + $ % / < : : $ 2

: ) # / A

4 0 0 2 h c r a M

Lehman Brothers | Fixed Income Research

W>


(;E9:9!%D (T9U(#!(

M@466)3"@@%23X B#696 6Y#W6 6W@%#I6 #@% 24@1#00X _"47%I #6 cTH OV?à >%@6"6 7.% E4@%9F2 3"@@%23X W0"6 4@ 192"6 # 6W@%#I& A.% 7.%4@X W@%6%27%I 92 7.% W@%>94"6 6%379426 W@%I9376 7.#7 Y.%2 7.% 3@%I97 @96: %1B%II%I 92 E4@%9F2 OV?à @#7%6 96 F@%#7%@ 7.#2 7.% 3@%I97 @96: %1B%II%I 92 cTH OV?à @#7%6Z 7.% 3@466)3"@@%23X B#696 6Y#W 6W@%#I 6.4"0I B% 2%F#79>%Z 9%Z 3%@7#92 W#X1%276 4E cTH OV?à #@% E#9@ #F#9267 E4@%9F2 OV?à 192"6 # 6W@%#I& T9190#@0XZ Y.%2 7.% 3@%I97 @96: %1B%II%I 92 E4@%9F2 OV?à @#7%6 96 0%66 7.#2 7.#7 92 cTH OV?à @#7%6Z 7.% 6W@%#I 6.4"0I B% W46979>%& A.96 6%37942 W@%6%276 641% %1W9@93#0 %>9I%23% 6"WW4@792F 7.%6% 91W093#79426&

W>C

!1G<4 34-.0. =&U

?47. cT #2I cD 1#@:%76 7@#I% ()1427. >%@6"6 *)1427. 142%X 1#@:%7 B#696 6Y#W6& e"47%I >%@6"6 043#0 *)1427. @#7%6Z @%W@%6%27#79>% 0%>%06 92 RW@90 -<<* Y%@% ()1427. cTH OV?à W0"6 &,+ B#696 W49276 #2I ()1427. U?d OV?à W0"6 - B#696 W49276& A.%6% 0%>%06 67@42F0X 91W0X 7.#7 14@% 3@%I97 @96: 96 B"907 9274 U?d OV?à 7.#2 9274 cTH OV?à& A.%@%E4@%Z 7.%4@X W@%I9376 7.#7 7.% 3@466)3"@@%23X B#696 6Y#W 6W@%#I 6.4"0I B% 2%F#79>%& A.96 Y#6 92 E#37 7.% 3#6%[ # @%W@%6%27#79>% 0%>%0 92 RW@90 -<<* Y#6 )(&+ B#696 W49276& V2 C#X -<<*Z 7.% 142%X 1#@:%7 B#696 6Y#W6 14>%I 74 ()1427. cTH OV?à W0"6 (&+ B#696 W49276 #2I ()1427. U?d OV?à W0"6 (&,+ B#696 W49276& A.% Y9I%292F 4E 7.% cT 6W@%#I #2I 79F.7%292F 4E 7.% cD 6W@%#I 3#2 B% #7 0%#67 W#@79#00X %SW0#92%I BX # 6"B67#279#0 Y%#:%292F 4E 7.% cT I400#@Z ;+)X%#@ 04Y6 92 (<)X%#@ cT X9%0I6Z #2I # 67@42F @96: 92 7.% O%.1#2 a96: d@%19"1 V2I%S& V2 #2X 3#6%Z #6 W@%I937%I BX 7.%4@XZ 7.% 2#@@4Y92F 4E 7.% I9EE%@%23% B%7Y%%2 7.% 142%X 1#@:%7 B#696 6Y#W 6W@%#I6 349239I%I Y97. 7.% 3@466)3"@@%23X B#696 6Y#W 6W@%#I E#0092F E@41 )(&+ 92 RW@90 74 )&,+ 92 C#X&

W>N

!%U 34-.0. =&U

A.% E04#792F @#7% 4E MRH 6Y#W6 #@% 3#00%I MHà @#7%6 \W@424"23%I 6%%)I4@]Z Y.93. #@% :%X%I 4EE M#2#I9#2 ?R6 \?#2:%@6^ R33%W7#23%6]& T923% ?R6 #@% 3400#7%@#09J%I BX @%3%9>#B0%6 Y.%@%#6 OV?à @#7%6 #@% "26%3"@%I B#2: 04#26Z MHà @#7%6 6.4"0I @%E0%37 04Y%@ 3@%I97 @96: 7.#2 OV?à @#7%6& V2 7.#7 3#6%Z 7.%4@X 91W09%6 7.#7 cTH >%@6"6 MRH 3@466)3"@@%23X B#696 6Y#W 6W@%#I6 6.4"0I B% W46979>%& R6 4E C#X -<<*Z 7.% ()X%#@ 6Y#W 7@#I%I #7 ' B#696 W49276Z 7.% -)X%#@ #7 G B#696 W49276Z #2I 7.% +) #2I (<)X%#@ #7 (< B#696 W49276&

W>Q

F42 34-.0. =&U

U9>%2 7.% I9EE93"079%6 4E 7.% P#W#2%6% %34241X #2I B#2:92F 6X67%1 4>%@ 7.% W#67 6%>%@#0 X%#@6Z 97 96 @%#642#B0% 74 34230"I% 7.#7 6.4@7)7%@1 P#W#2%6% @#7%6 @%E0%37 1"3. .9F.%@ 3@%I97 @96: 7.#2 %_"9>#0%27 1#7"@97X cT @#7%6& K"@7.%@14@%Z "2I%@ 7.96 6"WW4697942Z 7.%4@X W@%I9376 7.#7 7.% 3@466)3"@@%23X B#696 6Y#W 6W@%#I 6.4"0I B% 6"B67#279#00X 2%F#79>%& K9F"@% ;Z W047792F 7.96 6W@%#I 6923% P#2"#@X -<<(Z 6"WW4@76 7.96 3427%27942& A.% I%309292F 1#F297"I% 4E 7.% 6W@%#I 6923% 7.% %2I 4E -<<- 1#X @%E0%37 4W791961 6"@@4"2I92F @%3%27 3.#2F%6 #7 7.% ?#2: 4E P#W#2&

March 2004

8



A*50-4 S>

:4?42+ X*.+,-J ,I +@4 =&UYZEF !-,..R!0--42?J L1.*. &V17 &7-41)

1)&+& */+"#& B 7C 7L 7E 7V 7?B 7?C .),7B?

[>

W8:7B?

S9#7B?

W)"7BC

.)%7BC

W8"7BC

2$47BC

X$97BC

M$;7BU

.),7BU

!"#!D=&9"#

A.96 W#W%@ I%@9>%6 927%@%67 @#7% W#@97X E4@1"0#6 7.#7 9230"I% 7.% %EE%376 4E 242)J%@4 3@466) 3"@@%23X B#696 6Y#W 6W@%#I6& A.% W@4W4697942 7.#7 7.%6% 6W@%#I6 @%E0%37 3@%I97 I9EE%@%23%6 #3@466 6.4@7)7%@1 @#7%6 92 >#@94"6 3"@@%239%6 96 6"WW4@7%I BX 641% %>9I%23% E@41 @%3%27 0%>%06 4E U?dfcTHZ MRHfcTHZ #2I g%2fcTH 3@466)3"@@%23X B#696 6Y#W6&

%EE(#U9B C\ ;"#(F ;%:O($ &P%E& "A U(A%=D$RA:(( :%$(& $:%U( AD%$ A.% I%E#"07)E@%% 7%@1 67@"37"@% 4E @#7%6 96 I%E92%I 6"3. 7.#7 E4@ 7.% @96:)2%"7@#0 W@43%66 4E 7.% 9267#27#2%4"6Z 342792"4"60X 341W4"2I%I @#7% - ( ( ) Z 7.% W@93% 4E # J%@4 34"W42 B42I 1#7"@92F #7 791% ; 96[

 ∫ - (& )1&   I  "     ;

−

<

\']

V7 E4004Y6 7.#7 # E04#792F @#7% 247% W#X92F 7.% 9267#27#2%4"6 @#7% 96 Y4@7.

 ;  ∫ -( &) 1&  ∫ - ( ( ) 1(    I ∫ - ( & ) " 1& + I  " <        &

−

;

−

<

<

\G]

h>#0"#792F 7.% 927%F@#0 92 7.% E9@67 %SW%37#7942 7%@1Z

March 2004

9



;    ∫ -( &) 1&  - ( ( ) 1(  ∫    I  −"  + I − "       & <    ∫ - ( &) 1&   ∫ - ( &) 1&    + ( + I −"  = − I −"         &

;

−

−

<

<

=

;

;

−

−

<

=

<

\(<]

(

!%23%Z 7.96 E04#792F @#7% 247% 96 Y4@7. W#@& VE W#X1%276 #@% B#6%I 42 @#7%6 4E # W#@793"0#@ 7%@1Z 7.% E04#792F @#7% 247% 96 67900 Y4@7. W#@& O%7 /+ B% 7.% @#7% 4E 7%@1 τ X%#@6 #7 791% +τ & A.%2Z 7.% >#0"% 4E 7.% 247% 96[ τ

( )  ∫ I<  ∑ /+ τ "  + 

+ +( τ

  - (& )1&   + I " ∫  <       ;

- ( & ) 1&

−

<

−

\((]

<

τ

N.%@%Z BX I%E9297942Z

 ( ) - (& )1&   ∫  = I+ "   ( + /+ τ   + +( τ

−

(

\(-]

+τ

τ

c692F 7.% 0#Y 4E 97%@#7%I %SW%37#79426Z \((] 1#X B% @%Y@977%2 #6[

  ( ) - (& )1&   ∫ - (& )1&  - ( & ) 1& ∫  ∫    I<  ∑ /+ τ " I+ "  + I< "      +     + +( τ

+τ

−

;

−

<

−

+τ

<

τ

\(*]

T"B6797"792F \(-] 9274 \(*] #2I "692F 7.% 0#Y 4 E 97%@#7%I %SW%37#79426 #F#92Z ( )     ∫ - (& )1&  & 1& ( ) ∫ ∫ - (& )1&      I<  ∑ " ( − "   + I < "     +     ( )    ∫ - (& )1&  - ( & ) 1& ∫ ∫ - (& )1&    + I < " = I< ∑ " −"  +         ∫ - (& )1&   ∫ - (& )1&      =( = ( − I< " + I< "         + +( τ

+τ

−

;

−

<

−

+τ

+ +( τ

+τ

−

<

;

−

<

−

<

<

;

−

\(;]

;

−

<

<

!%23%Z # E04#792F @#7% 247% W#X92F 7.% I%E#"07)E@%% @#7% 4E #2X 7%@1 96 #064 Y4@7. W#@& ?%3#"6% #00 E04#792F @#7% 247%6 :%X%I 4EE I%E#"07)E@%% @#7%6 #@% Y4@7. W#@Z # 6Y#W 4E #2X I%E#"07)E@%% @#7% E4@ #247.%@ 96 Y4@7. J%@4&

March 2004

10



%EE(#U9B N\ !:"&&R!=::(#!F L%&9& &P%E& "A U(A%=D$RA:(( :%$(& $:%U( AD%$ R6 92 RWW%2I9S (Z 0%7 - ( ( I%247% 7.% @96:)2%"7@#0 W@43%66 E4@ 7.% >#0"#7942 4E I400#@ 30#916& ) O%7 A ( ( ) B% 7.% %S3.#2F% @#7% W@43%66 4E I400#@6 W%@ "297 4E E4@%9F2 3"@@%23X Y.93. 96 @96:) 2%"7@#0 Y97. @%6W%37 74 7.% >#0"#7942 4E I400#@ 30#916& ?X 7.%6% I%E92979426Z 7.% 1%#2 4E A ( ( ) 96 34267@#92%I BX #2 9267#27#2%4"6 E4@1 4E 927%@%67 @#7% W#@97X& A4 Y97Z 34269I%@ "692F ( I400#@ 74 B"X ( A "2976 4E E4@%9F2 3"@@%23XZ 92>%6792F 7.46% W@43%%I6 #7 7.% E4@%9F2 @#7% #2IZ #E7%@ 791% ∆( Z 342>%@792F B#3: 74 I400#@6& ?%3#"6% 7.% W@43%66%6 #@% @96:)2%"7@#0 Y97. @%6W%37 74 W@9392F I400#@ 30#916Z 7.% W@%6%27 >#0"% 4E 7.96 67@#7%FX 1"67 B% ( I400#@& C#7.%1#793#00XZ

% Z 0%7792F 7.% E4@%9F2 3"@@%23X 927%@%67 @#7% B% -

 A + ∆A -% ( - (  " "  =(  A   ∆A  ( - -% ) ( I  −(  ="  A  I 

O%7792F

#WW@4#3. ∆(

∆

− ∆

−

∆

\(+]

J%@4Z

 1A   = ( - − -% ) 1(  A 

I 

\(=]

A.% I400#@ >#0"% 4E # 30#91 92 7.% E4@%9F2 3"@@%23X 1#X B% 341W"7%I BX 342>%@792F 7.% E4@%9F2 3"@@%23X 3#6. E04Y6 74 I400#@6Z I9634"2792F #7 I400#@ 927%@%67 @#7%6Z #2I 7#:92F %SW%37#79426 "692F 7.% @96:)2%"7@#0 W@43%66 E4@ >#0"92F I400#@ 30#916& V2 7.% 3#6% 4E # E04#792F @#7% 247% 92 7.% E4@%9F2 3 "@@%23XZ 7.% >#0"% 96[

 ;  ∫ - (% )1%  ∫ - (( ) 1(    I ∫ A ( ( ) -% (( ) " 1( + I A ; " <        (

;

−

−

<

<

\(,]

K4@ 3423@%7%2%66Z 0%7 7.% @96:)2%"7@#0 %S3.#2F% @#7% E4004Y 7.% 6743.#6793 W@43%66 1A A

=

( - − -% ) 1( + σ 19 ( ( )

\(']

Y.93. 91W09%6 7.#7 (

A ( ( ) = A< "

∫ ( - (& ) <

−-%

( & ) )1& − ( -σ -( + σ J (( )

\(G]

c692F \(G]Z 7.% E9@67 7%@1 4E \(,] 1#X B% 691W09E9%I #6 E4004Y6[

March 2004

11



;  ; ∫ - (% ) 1%  ∫ -% ( & )1&  I ∫ A ( ( )-% (( ) " 1( = A < I  ∫ -% (( ) " <  <    (

 1(   

(

−

−

<

− ( -σ

-

( + σ J (( )

<

 ;  ∫ -% ( & )1 &  1   −" = A< I "  ∫ 1(  <      (

−

<

  ∫ -% ( & )1& ( " = A< I −"     ∫ -% (& )1&  " = A< − A < I − "  

− ( -σ

− ( -σ

<

-

( + σ J ( ( )

(

;

+σ

J (( )

+

<

∫

−

−"

< ( = <

;

−

 1(   

;

(

−

-

− (- σ

-

; +σ J (; )

∫ <

-% ( & )1&

{

1 "

− ( -σ

-

( + σ J (( )

}

    

\-<]

   

A.% 0#67 %_"#097X .40I6 B%3#"6% 7.% 0#67 7%@1 92 7.% B@#3:%76 4E 7.% W%2"0791#7% %_"#097X 96 # 1#@792F#0% #2IZ 7.%@%E4@%Z J%@4 92 %SW%37#7942& c692F \(G]Z 7.% 6%342I 7%@1 4E \(,] 96[ ;

∫

A< I"

<

− -%

( & ) 1& − (-σ -; +σ J (; )

\-(]

M41B9292F 7.% 0#67 %_"#097X 4E \-<] Y97. \-(] 74 #II 7.% 7Y4 7%@16 4E \(,]Z 7.% >#0"% 4E 7.% E4@%9F2 E04#792F @#7% 247% 96 A < I400#@6 4@ ( "297 4E E4@%9F2 3"@@%23X& K@41 RWW%2I9S (Z 7.% I400#@ E04#7%@ 96 Y4@7. 976 247942#0 #14"27b E@41 7.96 #WW%2I9SZ 7.% E4@%9F2 E04#7%@ 96 Y4@7. 976 247942#0 #14"27& !%23%Z # 3@466)3"@@%23X B#696 6Y#WZ 9%Z #2 %S3.#2F% 4E A < 247942#0 #14"27 4E I400#@ E04#792F @#7% 6Y#W6 E4@ ( 247942#0 #14"27 4E E4@%9F2 E04#792F @#7% 6Y#W6Z 96 Y4@7. J%@4& V2 47.%@ Y4@I6Z 7.% 3@466)3"@@%23X B#696 6Y#W 7@#I%6 E0#7&

March 2004

12

Lehman Brothers Fixed Income Research analysts produce proprietary research in conjunction with firm trading desks that trade as principal in the instruments mentioned herein, and hence their research is not independent of the proprietary interests of the firm. The firm's interests may conflict with the interests of an investor in those instruments. Lehman Brothers Fixed Income Research analysts receive compensation based in part on the firm's trading and capital markets revenues. Lehman Brothers and any affiliate may have a position in the instruments or the company discussed in this report. The views expressed in this report accurately reflect the personal views of Bruce Tuckmann, Pedro Porfirio, the primary analyst(s) responsible for this report, about the subject securities or issuers referred to herein, and no part of such analyst(s)' compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed herein. The research analysts responsible for preparing this report receive compensation based upon various factors, including, among other things, the quality of their work, firm revenues, including trading and capital markets revenues, competitive factors and client feedback. Any reports referenced herein published after 14 April 2003 have been certified in accordance with Regulation AC. To obtain copies of these reports and their certifications, please contact Larry Pindyck ([email protected]; 212-526-6268) or Valerie Monchi ([email protected]; 44-207-011-8035).

This material has been prepared and/or issued by Lehman Brothers Inc., member SIPC, and/or one of its affiliates (“Lehman Brothers”) and has been approved by Lehman Brothers International (Europe), regulated by the Financial Services Authority, in connection with its distribution in the European Economic Area. This material is distributed in Japan by Lehman Brothers Japan Inc., and in Hong Kong by Lehman Brothers Asia Limited. This material is distributed in Australia by Lehman Brothers Australia Pty Limited, and in Singapore by Lehman Brothers Inc., Singapore Branch. This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other instruments mentioned in it. No part of this document may be reproduced in any manner without the written permission of Lehman Brothers. We do not represent that this information, including any third party information, is accurate or complete and it should not be relied upon as such. It is provided with the understanding that Lehman Brothers is not acting in a fiduciary capacity. Opinions expressed herein reflect the opinion of Lehman Brothers and are subject to change without notice. The products mentioned in this document may not be eligible for sale in some states or countries, and they may not be suitable for all types of investors. If an investor has any doubts about product suitability, he should consult his Lehman Brothers’ representative. The value of and the income produced by products may fluctuate, so that an investor may get back less than he invested. Value and income may be adversely affected by exchange rates, interest rates, or other factors. Past performance is not necessarily indicative of future results. If a product is income producing, part of the capital invested may be used to pay that income. Lehman Brothers may make a market or deal as principal in the securities mentioned in this document or in options, futures, or other derivatives based thereon. In addition, Lehman Brothers, its shareholders, directors, officers and/or employees, may from time to time have long or short positions in such securities or in options, futures, or other derivative instruments based thereon. One or more directors, officers, and/or employees of Lehman Brothers may be a director of the issuer of the securities mentioned in this document. Lehman Brothers may have managed or co-managed a public offering of securities for any issuer mentioned in this document within the last three years, or may, from time to time, perform investment banking or other services for, or solicit investment banking or other business from any company mentioned in this document. © 2003

Lehman Brothers. All rights reserved. Additional information is available on request. Please contact a Lehman Brothers’ entity in your home jurisdiction.

[Lehman Brothers, Tuckman] Interest Rate Parity, Money Market Baisis Swaps, And Cross-Currency Basis Swaps

Recommend Documents