Fixed Income (2235.YR.004030.1)

General information

Type:	OPT	Curs:	1	Period:	S semester
ECTS Credits:	3 ECTS

Teaching Staff:

Group	Teacher	Department	Language
Year 1	Luca Del Viva	Economía, Finanzas y Contabilidad	ENG

Term 2 courses of the MSc. Finance Program or equivalent.

Basic Undergraduate Mathematics (Calculus, Linear Algebra) and Statistics.

Lectures and participatory sessions represent about 30 hours and approximately 50% of the workload.
Assignments and preparation for the final exam represent another 50% of the workload.

Fixed-income markets have witnessed major growth in the last few years which in turn has resulted in a strong demand by financial and non-financial institutions for professionals able to analyze and price fixed-income securities and their derivatives. The concepts developed in the course also have a direct bearing on, and usefulness for, other courses of the program such as Risk Management in Financial Institutions, International Portfolio Management or Banking and Insurance.

The course develops the methodology needed in order to analyze and price securities, the prices of which are directly linked to the level of interest rates. In particular, the course introduces the concept of "arbitrage pricing" and its application to fixed-income finance, as well as measures of risk and return used in the fixed income markets. As such, the course learning objectives are (1) to provide class participants with the analytical tools for assessing, analyzing and pricing fixed-income products including fixed-income derivatives such as interest rate swaps, forward-rate agreements and (basic) interest rate options, and (2) to expose students to the essentials of managing fixed-income portfolios. At the end of the course, students should be confident enough to apply for a junior position at banking institutions, pension funds, mutual funds, hedge funds, large corporations and also governmental agencies including Treasury Departments and Central Banks dealing with fixed-income securities and markets. The course is also an essential component for students planning to prepare for and take the CFA examinations.

1. Introduction, Prices, and Discount Factors Introduction to Fixed Income Securities and Markets: differences with equity, size of the fixed Income Market, Size of the Derivative Market, Main Regulation and Definitions. Type of Fixed Income Instruments: sectors issuing fixed income securities, overview of fixed income securities features, REPO market and Mortgage Backed Securities. Risk associated with investing in fixed income securities.

2. Introduction to fixed income valuation discount factors, interest rates and compound frequency. The term structure of interest rates across maturities and over time Zero coupon bonds, coupon bearing bonds and yield to maturity. Pricing of conventional bonds

3. Basic of interest rate risk management: Duration, VaR and Immunization Risk involved in fixed income instruments. Duration and Convexity of a zero coupon bond, of a portfolio of bonds and a coupon bearing bond. The use of duration and Convexity to hedge against changes in the interest rates presentation of a real case.

4. Svensson Model Presentation of the Nelson Siegel and Svensson model for interest rates modelling. Calibration and use.

5. Floating Coupon Rate Bonds Pricing and risk management of floating rate bonds. ESG linked bonds

6. Fixed Income Derivatives: FRA and Forward Contracts Details of the contract and possible applications.

7. Fixed Income Derivatives: SWAPS

8. Fixed Income Options Description and pricing of options written on fixed income securities.

9. Term Structure Models: Trees Introduction to binomial trees

Lectures combine theoretical explanations, real-life examples, and applications of pricing, arbitraging and hedging in the field of fixed-income securities and markets.

- Veronesi, P., Fixed Income Securities - Valuation, Risk and Risk Management. Wiley, 2010

- Tuckman B. and A. Serrat, Fixed Income Securities -Tools for Today's Markets, Wiley Finance, University Edition, 3/E, 2012

- Sundaram, R. K. and S. R. Das, Derivatives: Principles and Practice: McGraw Hill Irwin, 2/E, 2016

- Sundaresan, S., Fixed Income Markets and Their Derivatives, Academic Press, 3/E, 2009

Group	Teacher	Department
Year 1	Luca Del Viva	Economía, Finanzas y Contabilidad