Introduction:
Overview of Bond Markets |
Lecture
Notes |
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Chapter 1:
Bond Price Arithmetic
- Review Basics of Time Value of Money
- To understand market convention of quoting prices
- To understand different compounding mechanisms and date conventions.
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Lecture Notes |
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Chapter 2:
Treasury Bills, Bonds, Strips, Arbitrage Pricing
- Treasury Bills
- Treasury Notes and Bonds
- STRIPS and arbitrage relationships
- Treasury Unflation Protected Securities
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Lecture Notes |
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Chapter 3:
Organization of Government Bond Markets
- Overall organization of US Government Bond Market
- Role of Treasury and Federal Reserve Bank
- Fed Funds, The discount rate and Repo rates
- Primary Dealers
- Treasury Auctions
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Lecture Note
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Chapter 4:
Spot, Forward and Par Rates
- The discount function
- The yield to maturity curve, spot curve or zero curve
- forward prices of zero coupon bonds
- forward interest rates and spot rates
- par rates and spot rates
- forward prices of coupon bonds.
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Lecture Note |
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Are There Arbitrage Free Opportunities in the Government Bond Market:
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Chapter 5:
Repurchase Agreements and Forward Contracts.
- Repurchase Agrements
- Reverse REPOS
- Special Repo Rates
- Pricing Forward Contracts on Treasury Bonds
- Implied Repo Rates.
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Lecture Note |
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Chapter 6:
Eurodollars, Forward Rate Agreements and ED Futures.
- Eurodollar deposits
- forward loans
- forward rate agreements
- ED Futures
- Hedging with FRAs and ED Futures
- Constructing the LIBOR Zero curve.
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Lecture Notes |
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Chapter 7:
Swaps and Floaters.
- Interest Rate Swaps and FRAs
- Pricing Vanilla Interest Rate Swaps
- Pricing Floating rate Notes
- Credit Risk and Interest Rate swaps
- Strategies with Interest Rate Swaps.
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Lecture Note |
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Chapter 8
Yield Curve Construction
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Chapter 9
Measures of Price Sensitivity
- Maculay Duration
- Modified Duration
- DVO!
- Convexity and Bond Price Changes
- Immunization
- Duration hedging
- Twist Risk, Barbells and Ladders
- More on Duration
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Lecture Note |
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Chapter 10:
Key Rate Durations
- Where in the yield curve is the bond portfolio exposed?
- Measures of risk to non parallel shocks
- risk measures along the yield curve
- Breakdown of DV01
- Key Rate Duration Profiles.
- Hedging Decisions and Key rate Durations.
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Lecture Note |
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Chapter 11
Interest Rate Contingent Claims
- Interest Rate Caps, Floors and Swaptions
- Difficulties in pricing Interest Rate Claims
- Properties of Desirable Models
- Hedging and Capping Interest Rate Risk
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Lecture Note |
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Chapter 12:
Theories of the Term Structure
- Forward rates in a world of certainty
- Forward rates in a world of uncertainty
- The expectations hypothesis and the preferred habitat
- local expectations hypothesis and other theories.
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Lecture Notes |
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Chapter 13:
Arbitrage Free Pricing
- Redundancy and Replication
- Local expectations hypothesis, risk neutral pricing, and no arbitrage.
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Lecture Notes |
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Chapter 14:
Pricing Embedded Options
- Externallly Consistent Pricing
- The Black Derman Toy Model
- Pricing Coupon Bonds, Callables and Putables,
- Pricing Exotic Swaps
- Forwards compared with Futures
- Options on Forwards and Options on Futures
- Structured Products
- Option Adjusted Spreads
- Duration, Convexity, and Key rate Duration
- The wide variety of derivatives.
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Lecture Notes |
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Chapter 15
Corporate Securities
- Corporate Bonds and common embedded options
- Risk Premium on corporate discount bonds
- Merton's model
- Pricing Junior debt
- Credit Spreads
- Convertibles
- Other Corporate Issues.
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Chapter 16
Credit Derivatives
Credit Derivative Markets
Credit Derivative Uses
Credit Default Swaps
Total Return Swaps
Credit Linked Notes
CDOs
Pricing Models for Credit Derivatives
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Lecture Notes |
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Chapter 17
Mortgage markets
Mortgage math
Mortgage Passthroughs
Mortgage Backed Securities
Prepayments
Pricing Issues
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Lecture Notes
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