Course Title
:
FIXED INCOME SECURITIES (BMA5308)
Instructor
:
Prof. B.B.Chakrabarti
Pre-Requisites :
Knowledge of basic mathematics and finance will be helpful.
Course Objectives
The objectives are to comprehend various types of fixed income securities and their risks, risk mitigation and portfolio
management. The course also deals with term structure of interest rates and valuation of bonds – plain vanilla as well
as bonds with embedded options. Interest rate derivatives used for risk management along with their pricing are also
discussed. The theoretical principles and applications are explained with case studies, solution of problems and MS
Excel based assignment.
Course Outline
Session
Topic
Readings
Assignment
a) Features of Debt Securities
Fabozzi Chapters 1
To be assigned by the
b) Risks Associated with Investing in Bonds
and 2
Instructor
a) Overview of Bond Sectors and Investments
Fabozzi Chapters 3
b) Yield Measures, Spot Rates and Forward Rates
and 6
To be assigned by the
Instructor
3
a) Introduction to Valuation of Debt Securities
Fabozzi Chapters 5
4
b) Tutorial on Topic 2b
a) Term Structure and Volatility of Interest Rates
To be assigned by the
Instructor
Fabozzi Chapters 8
b) Introduction to Measurement of Interest Rate Risk
and 7
To be assigned by the
Instructor
1
2
5
a) Tutorial on Chapters 3a
6
b) Interest Rate Derivatives: FRA, Futures and Bond
Options
a) Interest Rate Swap
7
b) Tutorial on Topic 4b
c) Quiz 1 (30 minutes)
a) Tutorial on Topics 5b and 6a
8
b) Interest Rate Options – Caps, Collars, Floors and
Swap Options
a) Valuing Bonds with Embedded Options
9
Hull – Chapter 6
Hull Chapter 7
Hull Chapter 28
To be assigned by the
Instructor
To be assigned by the
Instructor
To be assigned by the
Instructor
Fabozzi Chapter 9
b) Case: Arbitrage in the Government Bond Market
(HBS Case 9-293-093)
a) Introduction to Bond Portfolio Management
To be assigned by the
Instructor
Fabozzi Chapters 16
b) Managing Funds against a Bond Market Index
and 18
To be assigned by the
Instructor
10
a) Portfolio Immunization and Cash Flow Matching
Fabozzi Chapter 19
11
b) Tutorial on Topics 8a, 9a and 10a
a) Value at Risk for Debt Securities
To be assigned by the
Instructor
Hull Chapter 20
12
b) Case: R J Reynolds International Financing (HBS
Case 9-287-057)
c) Quiz 2 (30 minutes)
a) Martingale Pricing and Valuing Interest Rate
To be assigned by the
Instructor
Hull Chapter 31
Options using HJM Model
Fabozzi Chapter 24
b) Credit Derivatives
Note: Each session will be of 3.5 hours duration.
Text Book:
1) Fixed Income Analysis by F.J.Fabozzi – 2nd. Edition
2) Options, Futures and Derivatives by John C. Hull – 6th. Edition
Assessment Method
a) Individual Assignment (Problems): 20%
b) Quiz (2 nos.): 20%
c) Case Submission (2 cases): 10%
d) Class Participation in Case Discussion (2 cases): 10%
e) MS Excel Based Assignment: 20%
(Walt Disney Company’s Sleeping Beauty Bonds
HBS Case nos. 9-294-034 and 9-294-038)
f) Group Home Assignment: 20%