Type of Credit: Elective
Credit(s)
Number of Students
The aim of this course is to provide you with an introduction to the valuation of fixed income securities and the management of fixed income investment portfolios. Hedging and speculating the interest rate exposures with financial derivatives of fixed income securities will be studied. Securitization of the pool of mortgage loans will also be studied throughly.
Pre-requisite for Fixed Income Securities: Analytics and Derivatives for Graduate Students 固定收益證券：分析與創新（硏究所）: One-Semester (3-unit) undergraduate-level Economics AND One-Semester (3-unit) undergraduate-level Financial Management OR Consent from the Instructor.
The following five modules are carefully covered from Frank Fabozz's Bond Markets, Analysis, and Strategies, Eighth Global Edition:
Bond Math: CH02, CH03, CH04, CH05
Bond Basics: CH06, CH07, CH08, CH09
Mortgages and Mortgage-Backed Securities: CH10, CH11, CH12, CH15
Bond Portfolio Management: CH22, CH23, CH24, CH25
Bond Derivatives: CH19, CH26, CH27, CH28, CH29
Binomial Tree Valuation: CH17, CH27, CH28
Pre-requisite for Fixed Income Securities: Analytics and Derivatives for Graduate Students 固定收益證券：分析與創新（硏究所）: One-Semester (3-unit) undergraduate-level Economics AND One-Semester (3-unit) undergraduate-level Financial Management OR Consent from the Instructor.
固定收益證券：分析與創新（硏究所）預修科目：三學分之（大學部）經濟學以及三學分之（大學部）財務管理或者是經由老師同意選修。
Maximum Enrollment Limit: 40
能力項目說明
In their simplest form, fixed income securities are characterized by pre-determined cash-flows that occur at fixed points in time, thus the term "fixed income". Coupon bonds are the most widely recognized fixed income securities. We will start with the basics of bond pricing - the relationship between the price of a bond, measures of return on the bond and measures of risk. We then study mortgage bonds and the securitization of a pool of mortgages; and also the life cycle mortgages. Next, we will discuss the various sectors of the bond market, the types of securities traded and the risks involved in each sector. The tools for the valuation of bonds, fixed income derivatives and credit derivatives will be thoroughly studied in this course. With the building blocks in place, we will next discuss portfolio management strategies and risk management practices.
| 教學週次Course Week | 彈性補充教學週次Flexible Supplemental Instruction Week | 彈性補充教學類別Flexible Supplemental Instruction Type |
|---|---|---|
Spring 2024 Classes will meet on Wednesdays.
Student workload expectation (學習投入時間): 3-4.5 hours of self-study per weekly class meeting of 3 hours. That is: Outside-of-class Hours (課程前後) is 3-4.5 per Weekly Class Hours (課堂講授) of 3.
Weekly Topics
Introduction
Week 1 Bond Mathematics
Weeks 2 and 3
We will examine the relationship between the price and yield of a bond. Measures of risk such as duration and convexity will also be discussed.
Term Structure of Interest Rates
Weeks 4 and 5
We will examine the relationship between yields on bonds of different maturities. We will also attempt to understand the link between interest rates and other economic variables.
Market Sectors
Week 6 Default-free Bonds
Week 6 Corporate and Municipal Bonds
Week 6 Foreign Bonds
Weeks 7, 8, and 9 Mortgage and Asset-Backed Securities
The various segments of the market and the characteristics of the securities and the risk of each type of security will be the focus.
Valuation: Bonds with Embedded Options + Fixed Income Derivatives
Weeks 10 and 11 Callable Bonds, Convertible Bonds and Prepayment
Weeks 12 and 13 Fixed Income Derivatives
Week 14 Credit Risk and Credit Derivatives
Most corporate bonds are callable bonds. Mortgages contain a prepayment option. What do these statements mean? How does one evaluate the risks involved? Interest rate derivatives are often used to manage the risk inherent in fixed income portfolios. What are the types of derivative securities available? How are they priced?
Portfolio Management Strategies
Weeks 15 and 16
What are the typical objectives of portfolio management? What are the risks involved? How are portfolios formed to achieve the objectives? How is performance evaluated?
Risk Management
Week 17 Notes on VaR, and Risk Management at LTCM
Financial institutions can greatly increase the level of business that can be supported by a given amount of capital if they can accurately quantify and manage risk.
Class Presentation of Project will start on Week Fifteen for three weeks.
Each group will have 15/20 minutes to describe their project, after which we will have 5 minutes for questions from the rest of the class - three/four group presentations per session.
Review/Final Exam
The final will be handed out two weeks before the last class and will be due in the last class.
Assignments: 20%, Midterm Exam: 40%, Final Exam or Final Project: 40%.
Required: Frank Fabozzi, Bond Markets, Analysis and Strategies, 10th Edition, MIT Press, 2021.
Highly Recommended: John Hull, Options, Futures, and Other Derivatives, 11th Edition, ISBN-13: 9781292410654, Prentice-Hall, 2022. (Importer: Yeh-Yeh Book Gallery, Taipei)
Recommended: Simon Benninga. Financial Modeling, 4th Edition, The MIT Press, 2014. ISBN: 978-0-262-02728-1. (Importer: Tung-Hua Book Co., Taipei)
On Course Reserve: Frank Fabozzi: The Handbook of Fixed Income Securities, Ninth Edition (ISBN-13: 9781260473896), McGraw-Hill, Release Date: June 2021.
TBA