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Analysis of Fixed Income

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Analysis of Fixed Income Finance COURSE NUMBER: 22:390:611 COURSE TITLE: Analysis of Fixed Income COURSE DESCRIPTION This course deals with the valuation and risk management of debt securities and the securities which derive their payoffs from the cash-flow generated by debt securities and loans. Fixed income securities play a prominent role in the portfolios of pension funds, mutual funds, and hedge funds. Adequate valuation and risk management of fixed income securities is of paramount importance for the success of a financial institution, and, as vividly demonstrated by the recent “Credit crisis”, for the efficient functioning of the entire economy. This course: (1) discusses the predominant types of fixed income securities; (2) introduces the fundamentals of pricing and risk management of bonds; (3) deals with the description and a broad characterization of certain classes of derivatives created via collateralization; (4) describes the practices of bond portfolio selection. After the successful completion of the course, the student is expected to understand (1) the structure and purpose of the most important fixed income instruments; (2) main types of financial risks involved in fixed income instruments and the fundamentals of how such risks may be analyzed. This course is broad in coverage with emphasis on the fundamental concepts. Special separate and highly quantitative courses on almost each type of major financial risks (market risks, credit risk, counterpart risk) may require the fundamental knowledge and skills offered in this course. COURSE MATERIALS Author(s) Frank J. Fabozzi Title Bond Markets, Analysis and Strategies, Pearson, (8th edition or later) ISBN-10 (8th edition) 0-13-274354-X ISBN-13 (8th edition) 978-0-13-274354-9 2 CLASS ORGANIZATION & ADMINISTRATION Attendance policy If you cannot attend an exam due to religious observance, a Rutgers-approved activity, illness, or family emergency/death and you seek a makeup exam, please, send me an email and supporting documentation within 5 days of your first absence. Standard practices for make-ups apply. Academic Integrity Cheating is prohibited and can be grounds for dismissal from the university: any student caught cheating will, at a minimum, receive a grade of zero for the item in question. Please, note that Rutgers University Honor Pledge states: “On my honor, I have neither received nor given any unauthorized assistance on this examination or assignment.” Students are responsible for understanding the RU Academic Integrity Policy (http://academicintegrity.rutgers.edu/files/document s/AI_Policy_2013.pdf). FINAL GRADE ASSIGMENT The grading will be done based on 3 exams (which will take place during the semester). Exam 1…............................30% Exam 2…………………………………………….35% Exam 3…..........................................35% Particular relevant details about the exam material (composition, type of problems) will be communicated during the lectures. All exam and final grades may be curved – the curving will depend on the performance of the students taking the class. During the exams, the following rules apply: • One one-sided A4 size formula sheet is allowed • No smart phones, tablets, or laptops are allowed in the testing room. Financial and regular calculators are allowed for computation purposes only (not as formula/data storage devices). • Alternate seating: please, do not sit in your usual seat 3 Finance (22:390:611) COURSE SCHEDULE Dates Chapters Topics 1/26 1, 2 Introduction to Fixed Income Analysis. Pricing of bonds 2/2 3 Measuring the yield 2/9 4 Bond price volatility 2/16 5 Factors affecting bond yields and term structure 2/23 Exam 1 3/2 11, 12 Agency mortgage pass-through securities. Agency CMOs. 3/9 12, 13 Agency CMOs (continued). Non-agency RMBS Spring recess 3/23 16, 17 Introduction to modeling interest rates with stochastic processes. Bonds (selected sections) with embedded options. 3/30 18 Analysis of RMBS 4/6 Exam 2 4/13 22, 23 Bond portfolio strategies and portfolio construction 4/20 24 Liability-driven strategies 4/27 24, 25 Liability-driven strategies (continued). Performance measurement and evaluation 5/4 Exam 3 The above schedule is tentative: the actual coverage (as well as the discussed financial mathematics details) will depend on the difficulty level and pace which is both sufficiently challenging and comfortable for students participating in the class. Your feedback is always welcome! SUPPORT SERVICES If you need accommodation for a disability, obtain a Letter of Accommodation from the Office of Disability Services. The Office of Disability Services at Rutgers, The State University of New Jersey, provides student-centered and student-inclusive programming in compliance with the Americans with Disabilities Act of 1990, the Americans with Disabilities Act Amendments of 2008, Section 504 of the Rehabilitation Act of 1973, Section 508 of the Rehabilitation Act of 1998, and the New Jersey Law Against Discrimination. https://ods.rutgers.edu If you are a military veteran or are on active military duty, you can obtain support through the Office of Veteran and Military Programs and Services. http://veterans.rutgers.edu/ If you are in need of mental health services, please use our readily available services. 4 Rutgers Counseling and Psychological Services – New Brunswick: http://rhscaps.rutgers.edu/ If you are in need of physical health services, please use our readily available services. Rutgers Health Services – New Brunswick: http://health.rutgers.edu/ If you are in need of legal services, please use our readily available services: http://rusls.rutgers.edu/ If you are in need of additional academic assistance, please use our readily available services. Rutgers University-New Brunswick Learning Center: https://rlc.rutgers.edu/ 5 .
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