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FIXED INCOME
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FIXED INCOME
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Academic year 2022/2023
- Course ID
- SEM0021
- Teaching staff
- Marina Marena (Lecturer)
Luca Martina (Lecturer) - Degree course
- Finance
Insurance and Statistics - Year
- 2nd year
- Teaching period
- First semester
- Type
- Distinctive
- Credits/Recognition
- 6
- Course disciplinary sector (SSD)
- SECS-S/06 - mathematical methods of economy, finance and actuarial sciences
- Delivery
- Formal authority
- Language
- English
- Attendance
- Optional
- Type of examination
- Written and oral
- Prerequisites
- Financial mathematics (for part 1 and 2), stochastic calculus and basics of derivative pricing (for part 2). ERASMUS students should contact marina.marena@unito.it to double check the required background.
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Sommario del corso
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Course objectives
The purpose of the course is to discuss:1) how to construct and manage a fixed-income portfolio
2) how to model the term structure of interest rates
3) how to price and hedge interest rate derivatives
Fundamental mathematical tecniques will be presented. Practical applications will be greatly discussed.
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Results of learning outcomes
At the end of the course, the student is expected to be capable of:- understanding fixed-income markets and instruments
- evaluating the impact of the determinants of interest rate movements
- constructing and maintaining a fixed-income portfolio, and assessing its credit risk
- constructing interest rate curves from marked data
- pricing and hedging interest rate derivatives
- applying the basic course knowledge to theoretical issues and concrete market situations
- approaching the subject in a critical manner through the examination of different approaches in the literature and practice of the fixed-income market
- having gained communication skills, through the debate during the lectures
- having gained learning abilities, through a variety of learning tools (teaching material, class discussion, lab sessions, homework and tests)
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Course delivery
Lectures, class discussion and lab sessions.Slides and other course material will be made available on Moodle in due time.
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Learning assessment methods
Written closed-book exam lasting 2 hours. Maximum grade is 30/30 cum laude (1/3 on part 1 and 2/3 on part 2). Students can take the exam at most three times per academic year on a total of five exam sessions (December, January, February, June and September). More details can be found on Moodle.- Oggetto:
Support activities
Compulsory homeworks will be assigned. Homeworks must be uploaded on Moodle. Deadlines will be posted on Moodle.
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Program
Part 1 [16 hours]
BOND ANALYSIS:
- Bond definition and characteristics
- Bond types
- Bond structure and priority
- Bond valuation
- Bond Return Measures (CY, YTM, YTC)
- Yield curve
- The effect of interest rate changes on bond prices
- Duration
- Determinants of Interest Rates
- Bond ratings and CRAs
- Bond spread
- Bond Yields
- Government BondsPORTFOLIO MANAGEMENT:
- Portfolio competition and market/strategy commentsPart 2 [32 hours]
INTEREST RATES DERIVATIVES: PRODUCTS AND MODELS
- Spot and forward contracts
- taxonomy of rates - Interest rate linear derivatives
- FRA and swaps - Bootstrapping/interpolating the interest rate curve
- Interest rate options
- options on bonds
- caps and floors
- swaptions - The change of measure technique
- Black's model and beyond
- Black's model
- Normal model
- Shifted lognormal model
- SABR model - Term structure modelling
- Short rate models [Hull-White one-factor model]
- HJM models [brief outline]
- Libor Market Model - Hedging interest rate risk
- Spot and forward contracts
Suggested readings and bibliography
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- Libro
- Title:
- Arbitrage theory in continuous time
- Year of publication:
- 2019
- Publisher:
- Oxford Finance Series
- Author:
- Tomas Björk
- ISBN
- Required:
- No
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- Libro
- Title:
- Interest Rate Models-Theory and Practice, with Smile, Inflation and Credit
- Year of publication:
- 2007
- Publisher:
- Springer
- Author:
- Damiano Brigo, Fabio Mercurio
- ISBN
- Required:
- No
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- Libro
- Title:
- Interest Rate Derivatives Explained. Volume 1: Products and Markets
- Year of publication:
- 2014
- Publisher:
- Palgrave
- Author:
- Jörg Kienitz
- ISBN
- Required:
- No
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- Libro
- Title:
- Interest Rate Derivatives Explained. Volume 2: Term Structure and Volatility Modelling
- Year of publication:
- 2017
- Publisher:
- Palgrave
- Author:
- Jörg Kienitz, Peter Caspers
- ISBN
- Required:
- No
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Class schedule
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