Course ID: | FINA 4340/6340. 3 hours. |
Course Title: | Fixed Income Securities and Analysis |
Course Description: | Explores the analytical concepts required to price and hedge
fixed income securities, with an emphasis on government bonds,
swaps, and Eurodollar futures contracts. We will also discuss
credit risk models and pricing. Throughout, the emphasis in the
class will be on practical applications using current data and
securities. |
Oasis Title: | Fixed Income Secur and Analysi |
Undergraduate Prerequisite: | (FINA 3000 or FINA 3000E or FINA 3000H) and (FINA 4310 or FINA 4310E) |
Graduate Prerequisite: | FINA 7010 |
Semester Course Offered: | Offered every year. |
Grading System: | A-F (Traditional) |
|
Course Objectives: | This class explores the analytical concepts required to price
and hedge interest rate and credit risk, with an emphasis on U.S.
treasury bonds and their term structure, interest rate swaps,
and Eurodollar futures contracts. In addition, we will discuss
models of credit risk and learn to price credit default swaps,
risky sovereign debt, and simple securitized assets. The
emphasis in this class will be on constructing models to
accurately value and understand these complex products, using
current data and actual securities. Interest rate risk is a
technically demanding area and credit risk management is even
more so. Students should be extremely comfortable with basic
statistical concepts (such as variance, correlation, linear
regression, and distributions) and fundamental financial ideas
(principally time value of money and compounding). Most
importantly, students will develop even more fluency with a
spreadsheet program (usually Microsoft Excel), which will be
essential to solve the problem sets assigned in the course. In
general, the class will follow the pattern of developing both
the theory and institutional details of the products and models,
followed by a period in which we will build (at least basic)
implementations in a spreadsheet environment. |
Topical Outline: | - Bond markets and a review of time value of money and
compounding
- The term structure of interest rates and spot and forward
curves
- Yield shifts and factors
- Measures of price sensitivity and hedging bond portfolios
- Interest rate swaps
- Eurodollar futures contracts, convexity, and hedging swaps
- Structural models of credit risk
- Reduced form models of credit risk and default probabilities
- Pricing asset swaps and credit default swaps
- Risky sovereign bond markets: From Argentina to Greece |