Fixed Income Instruments

Overview

This module examines the theory and the practical operation of bond markets. The course can be broadly divided into six parts. Firstly, we closely examine and analyse the investment environment of bonds and money-market instruments. This includes bond pricing and yield analysis. In the second part we focus on the term structure of interest rates: the empirical properties and theorems and the derivation of the zero-coupon yield curve. Thirdly, we analyse the hedging of interest-rate risk with duration. In the fourth part, we focus on the investment strategies that include passive and active fixed-income portfolio management and portfolio performance measurement. In the fifth part we investigate methods to model the term structure of interest rates and in the last part we are concerned with securitisation, i.e. mortgage-backed securities and asset-backed securities.

Learning Objectives

At the conclusion of the course participants will be equipped to:
1. Identify main sectors of the bond market
2. Appreciate the role of the time value of money in bond pricing
3. Understand variants of the standard bond yield measure
4. Understand and utilise the concepts of duration
5. Realise the importance of the yield curve and discuss the various theories of the term structure
6. Understand how to construct a successful fixed-income portfolio, or how to use fixed-income securities in equity-based portfolios
7. Understand the macroeconomic impacts on investors (and vice versa)

Skills

Problem solving, critical assessment and evaluation, group work and presentation skills.

Assessment

Students must achieve an overall mark of 40% in the module to pass