Spring 2024 Classes will meet on Wednesdays.

Student workload expectation (學習投入時間): 3-4.5 hours of self-study per weekly class meeting of 3 hours.  That is: Outside-of-class Hours (課程前後) is 3-4.5 per Weekly Class Hours (課堂講授) of 3.

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

Weeks 7, 8, and 9 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 10 and 11 Callable Bonds, Convertible Bonds and Prepayment

Weeks 12 and 13 Fixed Income Derivatives

Week 14 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 

Weeks 15 and 16

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 17 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

The final will be handed out two weeks before the last class and will be due in the last class.

TBA.

Assignments: 20%, Midterm Exam: 40%, Final Exam or Final Project: 40%.

Required: Frank Fabozzi, Bond Markets, Analysis and Strategies, 10th Edition, MIT Press, 2021.

Highly Recommended: John Hull, Options, Futures, and Other Derivatives, 11th Edition, ISBN-13: 9781292410654, Prentice-Hall, 2022. (Importer: Yeh-Yeh Book Gallery, Taipei)

Recommended: Simon Benninga. Financial Modeling, 4th Edition, The MIT Press, 2014. ISBN: 978-0-262-02728-1. (Importer: Tung-Hua Book Co., Taipei)

On Course Reserve: Frank Fabozzi: The Handbook of Fixed Income Securities, Ninth Edition (ISBN-13: 9781260473896), McGraw-Hill, Release Date: June 2021.