A finance course exploring the concepts required to price and hedge fixed income securities, introducing government bonds, term structures, hedging, and repurchase agreements. We also discuss in depth the Federal Reserve, credit risk models and pricing, and municipal bonds. The class emphasizes creation of complex financial models using current securities.
Additional Requirements for Graduate Students: Graduate students will also complete a guided project in fixed
income which will either be a statistical analysis of interest,
credit risk issues, a working valuation model for interest, or
credit risk products.
Athena 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)
Student learning Outcomes
Students will work in collaboration with other students to construct complex financial models to quantitatively measure the risks and expected returns in bond portfolios, design strategies to change those risks and returns, and program models to deliver the exact dollar impact of those strategies.
Students will formulate financial models that provide benchmark pricing for both bankruptcy-prone and default risk-free bonds and bond portfolios under very general movements in the current interest rate environment.
Students will complete professional certification on industry-standard technology platforms using the real-time financial software resources provided by the Capital Markets Laboratory.
Students will analyze the tradeoffs inherent in Federal Reserve policies and articulate in detail the new processes the Federal Reserve uses to influence key interest rates in the economy.
Students will clearly interpret the legal strategies available to bankrupt firms and municipalities and their impact on the pricing of the debt they have issued.
Students will explain and compare the statistical and machine learning models that form the basis for credit scoring and rating in institutional settings and build models that quantitatively render the dollar value of default risk.
Students will assess alternative methods for how local municipalities raise funds for capital projects (such as schools and water systems), describe the intricacies of those municipalities interactions with the banking system, and evaluate the impact of those choices on local communities.
Topical Outline
Creative contracting in bond markets and a review of time value of money and contracting
Emphasizing the importance of discounting each date with a different rate, and building term structures of par, spot and forward rates
Assessing the monetary impact and likelihood of yield curve shifts on bond prices and hedging strategies
Measuring price sensitivity and constructing hedges for bond portfolios
Examining repurchase and reverse repurchase agreements, modeling their fair prices, and using them to synthetically create leverage short and long bond positions
Describing in detail the post-crisis strategies the Federal Reserve uses to affect interest rates ,including modeling the Federal Reserve repurchase facilities.
Explain and compare the statistical and machine learning models that form the basis for credit scoring and rating in institutional settings
Extracting market-based default probabilities and using these to price and hedge credit default swaps
Creating option-based structural models to evaluate the balance sheet and stock price implied fair probabilities of default
Assess alternative methods for how local municipalities raise funds for capital projects (such as schools and water systems), describe the intricacies of those municipalities interactions with the banking system, and evaluate the impact of those choices on local communities.
Institutional Competencies Learning Outcomes
Analytical Thinking
The ability to reason, interpret, analyze, and solve problems from a wide array of authentic contexts.
Critical Thinking
The ability to pursue and comprehensively evaluate information before accepting or establishing a conclusion, decision, or action.
