Fixed income derivatives allow financial institutions to transfer the credit exposure of their bond positions to another party. In this way, they can separate the credit risk from the return flows on their bonds. However, as with all hedging, there is still a risk associated with the derivative position. Fixed income derivatives also allow fixed income managers to gain exposure to a particular asset with a relatively small outlay of money.
The course is designed to provide a description and analysis of fixed income securities.
It covers the broad topical areas of
(i) the institutions, instruments, and operations of fixed income securities markets;
(ii) the analysis and valuation of fixed income securities;
(iii) the analysis of interest rates and term structure;
(iv) interest rate related derivative instruments and how to use these contracts to reduce risk exposure and enhance the yields of fixed income portfolios.
Class lectures will focus on the theoretical aspects of these securities and will use currently offered fixed interest products to illustrate the theories.
