Fixed Income and Credit Risk

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

On successful completion of this module, students will be able to:

1. Describe fixed income markets and instruments

2. Perform calculations necessary to value and analyse fixed income products

3. Discuss interest rate dynamics and yield curve movements

4. Evaluate the benefits and risks of using fixed income strategies in different contexts

Skills

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

Assessment