Fixed Income Securities

Objetivos

This course discusses the most important securities traded in fixed income markets, the valuation models used to price them and the portfolio strategies that may control interest-rate risk and/or enhance returns. We analyze the payoff characteristics and quotation conventions of a wide range of fixed income securities, from zero-coupon government bonds, coupon-bearing government bonds and corporate bonds with simple cash-flow structures to securities with increasingly complex cash-flow structures such as floating-rate notes, callable bonds, inflation-linked bonds, Longevity Bonds, Mortgage-Backed Securities and interest rate derivative securities like FRAs, Futures, Interest Rate Swaps (IRS), Caps & Floors, Swaptions, Futures and options on bonds. We explain the methods used for estimating the yield curve (bootstrapping, Nelson-Siegel-Svensson, Splines) and for modeling the yield curve dynamics (e.g., Ho-Lee and Black-Derman-Toy models). We develop the tools to analyze interest-rate sensitivity (e.g., duration, convexity, M-squared) and value fixed-income securities, and discuss the use of active and passive portfolio strategies to control interest-rate risk and/or enhance returns, including hedging and immunization strategies.

Caracterização geral

Código

400097

Créditos

7.5

Professor responsável

Jorge Miguel Ventura Bravo

Horas

Semanais - A disponibilizar brevemente

Totais - A disponibilizar brevemente

Idioma de ensino

Português. No caso de existirem alunos de Erasmus, as aulas serão leccionadas em Inglês

Pré-requisitos

NA

Bibliografia

I. MAIN

  1. Petitt, B, Pinto, J. & Pirie, W. (2015). Fixed Income Analysis, 3rd Edition. John Wiley & Sons, Inc. - CFA Institute Investment Series, New Jersey
  2. Martellini, L., Priaulet, P. e Priaulet, S. (2003). Fixed-Income Securities: Valuation, Risk Management and Portfolio Strategies. John Wiley & Sons.

 

II. AUXILIARY

  1. 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 (portuguese).
  2. Choudhry, M. (2001). The Bond and Money Markets: Strategy, Trading, Analysis. Butterworth-Heinemann
  3. Fabozzi, Frank J. (2016). Bond Markets, Analysis and Strategies, 9th Ed. Pearson.
  4. Hénaff, P. (2013). Topics in Empirical Finance with R and Rmetrics. Rmetrics Association & Finance Online Publishing, Zurich
  5. Sundaresan, Suresh (2001). Fixed Income Markets and Their Derivatives. 2nd Ed Southwestern
  6. Tuckman, Bruce (2002). Fixed Income Securities: Tools for Today¿s Markets. 2nd Ed (University Edition), Wiley Finance.
  7. Veronesi, P. (2011). Fixed income securities: valuation, risk, and risk management. John Wiley & Sons.

Método de ensino

  • Expositional and Questioning Method Active Methods and Case Studies
  • Investigation projects and practical applications.
  • Knowledge development and learning capability.

Método de avaliação

The final grade for Exam Seasons 1 & 2 & all Special exams is computed as follows:

  • Group Cases and Problem sets: 60%
  • Individual Project / Exam: 40%

Conteúdo

  1. Basics of Fixed Income Markets and Securities
  1. Overview of Fixed Income Markets
  2. Bonds and Money-Market Instruments
  3. Bond Prices and Yields
  4. Analytics of fixed income markets
  1. Pricing of Fixed-coupon bonds
  2. Pricing of Floating-rate bonds
  3. Rating, credit risk and valuation of defaultable bonds
  1. Term structure of interest rates
  1. Spot and forward interest rates
  2. Empirical Properties and Classical Theories of the Term Structure
  3. Deriving the Zero-Coupon Yield Curve
  1. Bootstrapping
  2. Nelson-Siegel-Svensson models
  3. Cubic splines
  1. Bond Portfolio Interest Rate Risk Management
  1. Duration, Convexity, M2, M-Absolute, Key-rate durations, Duration vectors, parametric duration/convexity & beyond
  2. Hedging Strategies against parallel and non-parallel interest rates risk shifts
  3. Active Fixed-Income Portfolio Management
  4. Interest Rate Risk Immunization Strategies & Asset-Liability Management
  1. Interest Rate Derivatives
  1. Forward Rate Agreements: Mechanics, Pricing and Hedging
  2. Interest Rate Swaps (IRS)
  1. Swaps and Swap-Related Products and Terminology
  2. Pricing and Market Quotes, the swap yield curve
  3. Interest Rate Risk management with IRS
  1. Interest rate futures
  1. Eurodollar futures
  2. Treasury bond futures
  3. Mechanics, Pricing and Hedging
  1. Modeling the Yield Curve Dynamics
  1. The Binomial Interest-Rate Tree Methodology
  2. Continuous-Time Models
  1. Risk neutral pricing and Monte Carlo Simulations
  2. Interest rate options

Cursos

Cursos onde a unidade curricular é leccionada: