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招生教学

固定收益证券和利率模型

University of Hong Kong, School of Business

 

FIXED INCOME SECURITIES AND INTEREST RATE MODELLING

(MFIN7012 – PKU Shenzhen Programme)

(September, October 2008)

 

Instructor: Dr Andrew Carverhill, Email carverhill@business.hku.hk.

 

Text:   Fixed Income Securities: Tools for Today’s Markets, by Bruce Tuckman (Wiley, 2nd Edition, 2002).  Also, we will sometimes refer to Fundamentals of Options and Futures Markets, by John Hull (Prentice Hall, 2002), and I will distribute some other materials to the class.

 

Course Objective:  “Fixed Income Securities” covers bonds, loans, swaps, and all financial instruments relating to interest rates.  These securities make up a very substantial proportion of all investment and financing.

 

In this course we will learn about the design, functions and modelling of these securities.  We will also learn how these many instruments are related to each other, and how to manage the risk associated with them.   

 

Course Format and Assessment: The course will be taught partly as lectures, and partly as spreadsheet exercises to be done in class.  These exercises will form part of the homework assignments, to be done in groups of up to 5 students. The assessment for the course will be based 50% on these assignments, and 50% on the final exam.

 

 

Course outline:

Part 1:  Review of basic concepts: coupon bonds, pure discount bonds, STRIPS

        Bonds, and the Principle of No-Arbitrage. (Tuckman Ch 1)

Part 2:  Bond prices, spot rates and forward rates, and yield.  (Tuckman Ch 2, 3)

Part 3:  Real data issues: accrued interest; fitting the term structure of interest rates;

        the HK versus US term structure. (Tuckman Ch 4, plus extra material)

Part 4: Bond duration and convexity, duration hedging.  (Tuckman Ch 5, 6)

Part 5: Digression – bond and interest rate futures. (Tuckman Ch 20)

Part 6:   Key rate durations; hedging bond portfolios with futures contracts. (Tuckman   Ch 7, 8, plus extra material)

Part 7:  Binomial trees for fixed income securities. (Tuckman Ch 9)

Part 8: Some bonds with embedded options: callable bonds; US style mortgages

            (Tuckman, Ch 19, 21)

Part 9:  The art and science of term structure modelling. (Tuckman Ch 11, 12)

Part 10: Case Study: MTRC’s Structured Note. (Handout)