Lecture Notes Fixed Income Securities Professor - Pluto Huji Ac Il

420 Pages·2016·5.94 MB·English

Fixed Income Securities
Lecture Notes
Professor Doron Avramov
Hebrew University of Jerusalem
Chinese University of Hong Kong
Syllabus: Course Description
This course explores key concepts in understanding fixed income
instruments.
It especially develops tools for valuing and modeling risk
exposures of fixed income securities and their derivatives.
To make the material broadly accessible, concepts are, whenever
possible, explained through hands-on applications and examples
rather than through advanced mathematics.
Never-the-less, the course is quantitative and it requires good
background in finance and statistical analysis as well as
adequate analytical skills.
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Professor Doron Avramov, Fixed Income Securities
Syllabus: Topics
We will comprehensively cover topics related to fixed income
instruments, including nominal yields, effective yields, yield to
maturity, yield to call/put, spot rates, forward rates, present
value, future value, mortgage payments, term structure of
interest rates, bond price sensitivity to interest rate changes
(duration and convexity), hedging, horizon analysis, credit risk,
default probability, recovery rates, floaters, inverse floaters,
swaps, forward rate agreements, Eurodollars, convertible bonds,
callable bonds, interest rate models, risk neutral pricing, and
fixed income arbitrage.
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Professor Doron Avramov, Fixed Income Securities
Syllabus: Motivation
Fixed income is important and relevant in the financial economic
domain.
For one, much of the most successful and unsuccessful
investment strategies implemented by highly qualified managed
funds have involved fixed income instruments.
Domestically and internationally, pension and mutual funds,
among others, have largely been specializing in bond investing.
Moreover, effective risk management is essential in the
uncertain business environment in which interest rate and credit
quality fluctuate often abruptly.
Such uncertainties invoke the use of fixed income derivatives.
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Professor Doron Avramov, Fixed Income Securities
Syllabus: Motivation
Fixed income derivatives are standard instruments for managing
financial risk.
More than 90% of the world's largest 500 companies use fixed
income derivatives to manage interest rate and credit risk
exposures.
Further, financial engineers keep inventing new fixed income
derivatives to help firms transfer risk more effectively and
selectively.
It is therefore critical for anyone involved in corporate finance or
financial risk management to have deep-rooted understanding of
interest rate risk and fixed income securities.
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Professor Doron Avramov, Fixed Income Securities
Syllabus: Resources
Instructor
I welcome students to see me whenever possible to discuss any
aspect of the course.
Teaching Assistant
Recommended text: Handbook of Fixed Income
Securities by Pietro Veronesi
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Professor Doron Avramov, Fixed Income Securities
Syllabus: Assessment
Home Assignments (20%) – Problem sets will be assigned
periodically. You have to submit all problem sets on time to be
eligible for taking the final exam.
Final Exam (70%) - The final exam will be based on the
material and examples covered in class, problem sets, and
assigned reading. The exam is closed books and closed notes.
However, you will be allowed to bring in one piece of paper
with handwritten or typed notes (double-sided, A4 size). You
are not allowed to use any other notes. I will allow the use of
non-programmable calculators during the exam.
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Professor Doron Avramov, Fixed Income Securities
Syllabus: Assessment
Class Participation (10%) - It is mandatory to attend all
sessions. If you happen to miss a session, make sure to catch up,
as you are fully responsible for class lectures, announcements,
handouts, and discussions. If you miss more than three sessions
without proper documentations - you will be unable to take this
course for credit.
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Professor Doron Avramov, Fixed Income Securities
Overview, Risk Profile, and Trading
Strategies
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Professor Doron Avramov, Fixed Income Securities
Classifying Securities
Basic Types Major Subtypes
Money market instruments
Interest-bearing
Fixed-income securities
Equities Ordinary and Preffered Stocks
Options, Futures, Swaptions
Derivatives
Interest rate derivatives
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Professor Doron Avramov, Fixed Income Securities