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    Syllabus 2012

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    miguel.sabino8039
    This course covers valuation and risk management of fixed income securities such as bonds and interest rate derivatives. The objectives are to value securities with cash flows dependent on interest rates, measure and manage risk of fixed income portfolios, and determine optimal exercise of options embedded in fixed income securities. The course uses quantitative methods and prerequisites include financial mathematics, statistics, algebra, and calculus. Evaluation is based on midterms, a final, homeworks, and class participation. Topics include bond pricing, yields, forwards, duration, interest rate models, and credit risk.

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    Syllabus 2012

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    miguel.sabino8039
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    This course covers valuation and risk management of fixed income securities such as bonds and interest rate derivatives. The objectives are to value securities with cash flows dependent on interest rates, measure and manage risk of fixed income portfolios, and determine optimal exercise of options embedded in fixed income securities. The course uses quantitative methods and prerequisites include financial mathematics, statistics, algebra, and calculus. Evaluation is based on midterms, a final, homeworks, and class participation. Topics include bond pricing, yields, forwards, duration, interest rate models, and credit risk.

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    This course covers valuation and risk management of fixed income securities such as bonds and interest rate derivatives. The objectives are to value securities with cash flows dependent on interest rates, measure and manage risk of fixed income portfolios, and determine optimal exercise of options embedded in fixed income securities. The course uses quantitative methods and prerequisites include financial mathematics, statistics, algebra, and calculus. Evaluation is based on midterms, a final, homeworks, and class participation. Topics include bond pricing, yields, forwards, duration, interest rate models, and credit risk.

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    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    84 views3 pages

    Syllabus 2012

    Uploaded by

    miguel.sabino8039
    This course covers valuation and risk management of fixed income securities such as bonds and interest rate derivatives. The objectives are to value securities with cash flows dependent on interest rates, measure and manage risk of fixed income portfolios, and determine optimal exercise of options embedded in fixed income securities. The course uses quantitative methods and prerequisites include financial mathematics, statistics, algebra, and calculus. Evaluation is based on midterms, a final, homeworks, and class participation. Topics include bond pricing, yields, forwards, duration, interest rate models, and credit risk.

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    ITAM Money and Fixed Income Markets January - May 2012

    Professor Aurelio Vasquez Office: Santa Teresa Email: [email protected] Office hours: by appointment. Secretary: Claudia Rodrguez, Santa Teresa Campus Course web page: available on comunidad.itam.mx Objectives The objective of this course is to undertake a rigorous study of fixed income securities (bonds and fixed income derivatives). We will cover some tools that are useful for doing the following: y Value securities whose cash-flows depend on interest rates y Measure and manage the risk of portfolios of fixed income securities y Determine the optimal exercise policy for a variety of options that are embedded in fixed income securities (e.g., when should you refinance your mortgage?) While the course adopts the viewpoint of a bond investor, a person in corporate finance needs to understand similar material. Corporations (as well as individuals, almost all of whom will borrow at some point in their lifetimes) are exposed to interest rate risk. Prerequisites Modern fixed income analysis is characterized by a quantitative approach to all of these problems. The course (and the exams) will mirror this. As a result, students should be familiar with elementary:  financial mathematics: net present value and internal rate of return of a sequence of cashflows  statistics, algebra and calculus: e.g., you should be able to solve a system of two equations and two unknowns, to compute the derivative of a simple function (including exponential and logarithm), and you should know how to compute a mean and a standard deviation and what they mean. The use of Excel and VBA may also be necessary for the homeworks. Readings The course will not follow a textbook. Nonetheless, for those who want additional detail and applications, I recommend the following books: Martellini, Priaulet and Priaulet, Fixed Income Securities, Wiley, 2005. Pietro Veronesi, Fixed Income Securities: Valuation, Risk, and Risk Management, Wiley, 2010.

    Bruce Tuckman, Fixed Income Securities: Tools for Todays Markets, Second Edition, Wiley, 2002. Clewlow, L. and C. Strickland, Implementing derivatives models, Wiley, 1998. Beninga, Simon (2001), Financial Modeling Using Excel, third edition, MIT Press. Rebonato, Riccardo (1996), Interest-rate option models, Wiley. Sundaresan, Suresh (2009), Fixed Income Markets and Their Derivatives, 3rd edition, Academic Press. I may hand out some additional readings in class. The following book will be discussed in class on April 17 and students should have read the book and be prepared to answer questions about it. The book is available online as pdf and as audiobook. Hill Napoleon, Think and Grow Rich, 1937. Evaluation Your grade will be based on the following weighted average: Midterm Final Class Participation Homeworks 35% 35% 10% 20%

    y y

    The first midterm will take place in class on March 27. It will last 120 minutes. For all exams, you will be allowed a single, double-sided 8.5x11 sheet of paper with whatever formulas you want written on it formulas only please! The exams will otherwise be closed book. Financial calculators (not programmable) will be permitted. There will be several (approximately 4 to 5) assignments during the semester. These will be handed out in class. Students are allowed to work on these in groups of up to five people (and turn in a single answer for the whole group). Please note that, due to the contents of the course, you will be particularly busy between the two midterms, with several long homeworks during that period please plan ahead and dont wait until the last minute to get started! Class participation is an average of your grade and my grade computed as follows. You assign yourself a grade between 5 and 10. Five means no participation and 10 means outstanding participation in class. If your grade is one point higher than my grade, we leave your grade. If it is two points higher, we take my grade. If you grade is lower than my grade, we take the average of both grades. Note that the minimum grade is 6. The grade average of the class will be between 7 and 8. You decide whether you want to be above, below or average.

    Methodology y Class attendance is mandatory. The student should come with an open attitude to work, ask questions, participate, learn and question what he is learning. y The lectures will be supported by PowerPoint slides. I will make these available on the Internet (Comunidad), but I do not guarantee that I will always do so a lot of time before the material is covered in class, nor do I promise that everything will be put up on the web. These notes are not a substitute for class attendance, as I cover a lot of material on the blackboard. You are responsible for whatever material I cover in class, and should be prepared to take notes. Academic Integrity

    ITAM values academic integrity. Therefore, all students must understand the meaning and consequences of cheating, plagiarism and other academic offences under the Code of Student Conduct. ZERO TOLERANCE TO CHEATING, COPYING OR PLAGIRISM.
    List of topics covered 1. Introduction 2. Synthetic bonds, arbitrage and pricing 3. Bond yields 4. Forward rates and contracts 5. Risk measurement and management: duration and convexity 6. The Vasicek model 7. Bond options 8. Other models of interest rates 9. Bonds with embedded options 10. Other interest rate contingent claims: floating rate notes, options on yields, floating rate notes with embedded options, interest rate swaps, mortgages and mortgage backed securities 11. Credit risk and credit derivatives Acknowledgments I thank my colleague Benjamin Croitoru (McGill) and his supervisor Suleyman Basak (London Business School) for sharing their course materials with me. This course draws heavily on these materials.

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