Weekly Topics

Introduction –

Week 1

Bond Mathematics –

Weeks 2 and 3

We will examine the relationship between the price and yield of a bond. Measures of risk such as duration and convexity will also be discussed.

Term Structure of Interest Rates –

Weeks 4 and 5

We will examine the relationship between yields on bonds of different maturities. We will also attempt to understand the link between interest rates and other economic variables.

Market Sectors –

Week 6 Default-free Bonds

Week 6 Corporate and Municipal Bonds

Week 6 Foreign Bonds

Week 7 Mortgage- and Asset-Backed Securities

The various segments of the market and the characteristics of the securities and the risk of each type of security will be the focus.

Valuation: Bonds with Embedded Options + Fixed Income Derivatives –

Weeks 8 and 9 Callable Bonds, Convertible Bonds and Prepayment

Weeks 10 and 11 Fixed Income Derivatives

Week 12 Credit Risk and Credit Derivatives

Most corporate bonds are callable bonds. Mortgages contain a prepayment option. What do these statements mean? How does one evaluate the risks involved? Interest rate derivatives are often used to

manage the risk inherent in fixed income portfolios. What are the types of derivative securities available? How are they priced?

Portfolio Management Strategies –

Week 13

What are the typical objectives of portfolio management? What are the risks involved? How are portfolios formed to achieve the objectives? How is performance evaluated?

Risk Management –

Week 14 Notes on VaR, and Risk Management at LTCM

Financial institutions can greatly increase the level of business that can be supported by a given amount of capital if they can accurately quantify and manage risk.

Class Presentation of Project will start on Week Fifteen for three weeks.

Each group will have 15/20 minutes to describe their project, after which we will have 5 minutes for questions from the rest of the class - three/four group presentations per session.

Review/Final Exam 

TBA

The analysis of fixed income securities is a quantitative discipline. We will focus on the intuition, but there will still be a fair amount of math/numerical computation involved. The course will assume an expertise with basic statistical analysis and with a spreadsheet package (Microsoft Excel, etc.) or a programming language. 

Quizzes 30%, Midterm Exam 30%, Final Exam 40% 

Frank Fabozzi, Bond Markets, Analysis and Strategies, 9th Edition, Prentice Hall, 2016.