The purpose of this module is to provide a sound working knowledge of Fixed Income in leading markets including Europe, North America and Asia. The module will describe the key institutional actors, broad empirical regularities, and analytical tools that are used for pricing and risk management. The module is substantially analytical in nature and aims to assist students in their understanding of fixed income financial products through a series of online videos will be made available to enhance learning. Some aspects of the module will be largely related to describing institutional detail. This module will pivot towards Asian markets to expound institutional practice and sample data. Each session will be organized around one or two key topics/chapters.
Interest rates and Term Structure
Types of rates and Measuring interest rates
Zero rates and Bond pricing
Determining Treasury zero rates
US T-bond futures andEurodollar futures
Forward rate agreements
Duration/Convexity and Immunization Strategies
Theories of the term structure of interest rates
The Properties of the Nelson-Siegel Term Structure
Term Structure for Treasury Notes
Nelson-Siegel and Svensson
Factor interest-rate models (Vasicek and CIR)
Principal components analysis Model
Calculating Default-Adjusted Expected Bond Returns
Calculating the Expected Return in a One-Period Framework
Calculating the Bond Expected Return in a Multi-Period Framework
Computing the Bond Expected Return for an Actual Bond
Semiannual Transition Matrices
Duration-based hedging strategies using futures
Hedging portfolios of assets and liabilities
Swaps
Determining the LIBOR/swap zero rates
Valuation of interest rate swaps and Credit risk
Basic numerical procedures
Fixed Income Instruments and Embedded Options
Callable bond/Puttable bond
Convertible bond
Option-adjusted spread
Prepayment Rights in Mortgages
Numerical techniques
Interest Rate Risk
The Management of Net Interest Income
LIBOR and Swap Rates
Nonparallel Yield Curve Shifts
Interest Rate Deltas in Practice
Effective duration and convexity
Gamma and Vega
VaR and CVaR
Credit risk
Credit ratings, Historical default probabilities and Recovery rates
Estimating default probabilities from bond prices
Comparison of default probability estimates
Using equity prices to estimate default probabilities
The Merton Model and KMV Credit risk in derivatives transactions and Credit risk mitigation
Default correlation
Credit derivatives
Credit default swaps and Valuation of credit default swaps
Credit indices and CDS forwards and options
Basket credit default swaps
Collateralized debt obligations
Role of correlation in a basket CDS and CDO
Interest rate derivatives: The standard market models
Bond options and Interest rate caps and floors
European Swaptions
Hedging interest rate derivatives
Convexity, timing, quanto adjustments and Convexity adjustments
Interest rate derivatives: models of the short rate
Equilibrium models and No-arbitrage models
Interest rate trees
Hedging using a one-factor model
Agency mortgage-backed securities
SABR models
Bond market and instruments
Treasury and quasi-government securities
Corporate debt instruments
Municipal securities
International bonds (Eurobonds, offshore bonds, Yankee bonds, Panda bonds)
Securitization instruments
Bond portfolio issues
Bond portfolio management strategies
Bond portfolio construction
Bond portfolio indexes
Liability-driven strategies
Bond portfolio performance measurement and evaluation
Group discussions, group and individual exercises. Project based learning will be supported by formal lectures and computer labs. Online videos will also be made available to assist learning and navigate analytical techniques. Students will also engage in technical problem solving outside class time with issues arising being analyzed and discussed in class. Students will be required to model a number of finance topics using spreadsheets/VBA, Python, C++ and R.
| Module Content & Assessment | |
|---|---|
| Assessment Breakdown | % |
| Formal Examination | 70 |
| Other Assessment(s) | 30 |