Bond Markets
Objectives
This course covers the valuation and application of a wide variety of fixed income securities. Fixed income securities are financial claims including pure discount bonds, coupon bonds such as Treasury notes and corporate bonds, floating rate notes, callable bonds, among many others, issued by public or private entities. In this course we focus on bond pricing, yield curve construction, Interest rate risk and immunization strategies, and term structure models. The goal is to introduce you to the analytical tools used in interest rate modeling and risk management.
General characterization
Code
400059
Credits
7.5
Responsible teacher
Jorge Miguel Ventura Bravo
Hours
Weekly - Available soon
Total - Available soon
Teaching language
Portuguese. If there are Erasmus students, classes will be taught in English
Prerequisites
NA
Bibliography
I. MAIN
1. Martellini, L., Priaulet, P. e Priaulet, S. (2003). Fixed-Income Securities: Valuation, Risk Management and Portfolio Strategies. John Wiley & Sons.
2. Veronesi, P. (2011). Fixed income securities: valuation, risk, and risk management. John Wiley & Sons.
3. Choudhry, M. (2001). The Bond and Money Markets: Strategy, Trading, Analysis. Butterworth-Heinemann
II. AUXILIARY
4. Albuquerque, Carlos António Torroaes (1996). Análise e Avaliação de Obrigações. Rei dos Livros, Lisboa
5. Bravo, J. M. (2001). Modelos de Risco de Taxa de Juro: Estratégias de Cobertura e Imunização. Dissertação de Mestrado em Economia Monetária e Financeira, ISEG-UTL.
6. Fabozzi, Frank J., 2007, “Bond Markets, Analysis and Strategies”, 7th Ed., Prentice-Hall International Ed., Englewood Cliffs, New Jersey.
7. Sundaresan, Suresh (2001). Fixed Income Markets and Their Derivatives. 2ª ed Southwestern
8. Tuckman, Bruce (2002). Fixed Income Securities: Tools for Today’s Markets. 2nd ed (University Edition), Wiley Finance
III. DATA SCIENCE TOOLS
DataCamp: www.datacamp.com
Teaching method
- Expositional and Questioning Method Active Methods and Case Studies
- Investigation projects and practical applications.
- Knowledge development and learning capability.
Evaluation method
The final grade for exams 1 & 2 is computed as follows:
§ Final exam: 60%
o The exam is closed-book and closed-notes. However, you may use a two-sided A4 formula sheet and a pocket calculator.
o minimum grade of 8/20
§ Cases and Problem sets: 40%
Subject matter
1. Bond Markets: Analysis and Valuation
1.1. Basic concepts: Characterization, participants and market organization
1.2. Valuation of fixed rate coupon bonds
1.3. Return measures: ytm and RRR
1.4. Rating and credit risk
1.5. Valuation of floating rate bonds
2. Estimation of the zero-coupon yield curve
2.1. Term structure of interest rates: Spot and forward rates
2.2. Bootstrapping
2.3. Nelson-Siegel-Svensson model
2.4. Cubic splines
3. Interest rate risk and immunization strategies
3.1. Duration, convexity, M2 and other interest rate risk measures
3.2. Hedging and Immunization strategies: parallel and non-parallel interest rates risk models