Fixed Income
Code
2248
Academic unit
null
Department
null
Credits
null
Teacher in charge
João Pedro Pereira
Teaching language
Objectives
Fixed income securities include bonds that promise a fixed income stream and also other securities with contingent payments whose valuation depends on interest rates. Fixed income is one of the largest financial markets. For example, at the end of 2011 the U.S. government debt stood at 9.9 trillion USD (expected to keep rising); also, the notional value of the interest rate swap market was 402 trillion USD. From the corporate side, effective interest rate risk management is essential. Another example like, more than 90% of the world s largest 500 companies, use fixed income derivatives to manage their interest rate risk exposure.
This course covers the main models and techniques used to analyze fixed income instruments and their derivatives. The course aims to provide students with the concepts and tools that money managers and risk managers use every day to decide on how to allocate investments or to manage the interest rate risk exposure of mutual funds, hedge funds, insurance companies, investment banks, and other large nonfinancial firms.
Prerequisites
Subject matter
Bibliography
A set of handouts will be distributed in class. They are based on the following books:
1. Veronesi. Fixed income securities: valuation, risk, and risk management. John Wiley & Sons, 2011.
2. Hull. Options, futures, and other derivatives. Pearson, 8th ed, 2012.
3. Tuckman and Serrat. Fixed Income Securities. John Wiley and Sons, 2011.
Teaching method
The course will follow a standard lecture mode. There will be regular homework assignments.
Evaluation method
The final grade is computed as follows:
-Final exam (mandatory): 70%
o The exam is closed‐book and closed‐notes. However, you may use a two sidedA4 formula sheet and a pocket calculator.
Homework: 30%There will be between 3 to 5 homework assignments. The assignments should be done in groups of one, two (recommended), or three people. The assignments will consist of small end‐of‐chapter problems, as well as larger cases that will require some computer work. Some questions in the problem sets may not be graded.