AD 495 – Special Topics: Fixed Income Securities

AD 495 – Special Topics: Fixed Income Securities
Spring 2013
Class Meeting Time
Mondays 11am-1pm
Tuesdays 11am-12pm
Course Overview
An introduction to bonds and other debt instruments. Covers the models and
techniques required to price and analyze fixed income securities and their derivatives.
Includes the basic concepts of fixed income instruments, such as yield, duration,
convexity; pricing traditional derivatives such as swaps and bond options; management
of fixed income portfolios and hedging of associated risks. An elementary introduction
to term structure of interest rates and credit risk modeling, and their use in valuation of
derivative instruments.
Required Text
Fixed Income Securities: Valuation, Risk, and Risk Management, Pietro Veronesi
Mondays IB 312
Tuesdays IB 201
The Wall Street Journal, Financial Times.
[email protected]
 Homework and Quizzes (25%) – Five sets of problems and occasional pop quizzes
will determine part of your grade.
Office Location
 Midterm (30%) – In-class midterm roughly around the first week of April.
IB 305
 Final (45%) – In-class final exam per university mandated schedule.
Office Hours
 You need a calculator for general in-class use and exams. You are also expected to
be fairly comfortable with Excel for computations.
Mondays 10-11am
Tuesdays 10-11am
or by appointment
Teaching Assistant
Seda Erdoğan
[email protected]
Select articles that will be assigned as the semester progresses.
Course Contents
Below is a tentative outline of the topics that will be covered throughout the semester.
 Basics of Fixed Income Markets and Securities (2 weeks)
An introduction to fixed income markets, discount factors, interest rates, term
structure, coupon bonds, floating rate bonds, rate of return, yield to maturity.
 Interest Rate Risk Management (2 weeks)
Duration, convexity, immunization, slope and curvature.
 Interest Rate Derivatives (3 weeks)
Forward rates and contracts, interest rate swaps, futures and options, use of
derivatives for hedging and trading.
 Term Structure Models and More on Derivatives (4 weeks)
Risk neutral probabilities, no arbitrage pricing, interest rate models, binomial trees,
American options, callable bonds, caps, floors, swaps and swaptions, Monte Carlo
 Credit Risk and Credit Derivatives (1 week)
Time permitting, we will introduce the concept of credit risk and widely used credit
risk derivatives such as Credit Default Swaps (CDS).
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