# Fixed Income Mathematics: Pricing and Valuation of Bonds

### Fixed Income Mathematics: Pricing and Valuation of Bonds Course Description

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Explore and analyze the mathematics of bond prices and yields, as well as a variety of quantitative analytical methodologies.

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### Intended Audience for this Fixed Income Mathematics: Pricing and Valuation of Bonds Course

• » Portfolio managers, institutional sales staff, research analysts, and financial analysts

### Course Prerequisites for Fixed Income Mathematics: Pricing and Valuation of Bonds

• » Fixed Income Markets I or equivalent knowledge

### Fixed Income Mathematics: Pricing and Valuation of Bonds Course Objectives

• » Pricing and valuation of bonds based on historical and technical valuation
• » Calculate and interpret price, yield and accrued interest
• » Discuss yield to maturity as an expression of current value versus expected return
• » Identify by security appropriate interest compounding and day count conventions
• » Describe the various types of duration (Macualey's, modified, dollar, effective), as well as their application in quantifying and managing interest rate risk

### Fixed Income Mathematics: Pricing and Valuation of Bonds Course Outline

1. MODULE 1: INTEREST RATES AND PRICING CONVENTIONS
1. What is an interest rate: definitions
2. Interest conventions: simple and compound interest
2. MODULE 2: FINANCIAL MATHEMATICS
1. Time value of money
2. Bond math basics
3. Accrued interest
3. MODULE 3: CONVENTIONAL YIELD MEASURES
1. Nominal yield
2. Current yield
3. Yield to maturity
4. Yield to call
5. Conventions for yield quotes
4. MODULE 4: EXPECTED RISKS VERSUS EXPECTED RETURNS
1. Sources of return
2. Risks of fixed income securities
5. MODULE 5: YIELD TO MATURITY RECONSIDERED
1. As alternative expression of price
2. Why YTM is a poor proxy for future returns
6. MODULE 6: ESTIMATING RETURNS
1. Realized compound yield
2. Total return (horizon) analysis
7. MODULE 7: TYPES OF YIELD CURVES
1. Security type
2. Construction
8. MODULE 8: INTEREST RATE LEVELS AND SHAPE OF THE YIELD CURVE
1. Nominal interest rates (yields to maturity)
2. Related Considerations
3. Yield curve theories
9. MODULE 9: FACTORS DETERMINING VOLATILITY
1. Non callable bonds
2. Callable bonds
10. MODULE 10: MACAULEY'S DURATION
1. Developed as a measure of a bond's life
2. Immunizing portfolios
11. MODULE 11:QUANTIFYING PRICE SENSITIVITY TO CHANGES IN MARKET YIELDS
1. Modified duration
2. Dollar duration
3. Impact of convexit
12. MODULE 12: BOND PRICE VOLATILITY PART 2
1. Curvature of the price/yield function
2. Rate of change of duration
3. Second derivative of the price/yield function
13. MODULE 13: CALLABLE BONDS
1. Effective duration
2. Negative convexity
14. MODULE 14: OTHER USES OF DURATION AND CONVEXITY
1. Portfolio applications
2. Bond swap
15. MODULE 15: NATURE OF FUTURES CONTRACTS
1. What is a futures contract?
2. Role of the clearinghouse in futures trading
3. Forward contracts versus futures
16. MODULE 16: CHARACTERISTICS OF FUTURES CONTRACTS
1. Standardized contract specifications
2. Daily settlement
3. Margins
17. MODULE 17: FIXED INCOME FUTURES CONTRACTS
1. T-bond and T-note futures
2. Eurodollar and t-bill futures
18. MODULE 18: FINANCIAL FUTURES/FORWARD CONTRACTS PRICING RELATIONSHIPS
1. Cost of carry (carrying charges)
2. Cost of carry (arbitrage) pricing
3. Cash and carry trade example
4. Yield curve shape versus cash/futures relationship
5. Expectations in the pricing of futures/forwards
19. MODULE 19: HEDGING WITH FUTURES CONTRACTS
1. Definition
2. Hedging considerations
3. Hedging example
20. MODULE 20: INTRODUCTION TO MORTGAGE BACKED SECURITIES
1. Mortgage loans
2. Participants
21. MODULE 21:MORTGAGE PASS THROUGH SECURITIES
1. Types of mortgage pass through securities
2. Characteristics of pass throughs
3. Prepayment of principal (prepayment risk)
4. Mortgage pool characteristics
5. Mortgage pool prepayment considerations
6. Quantifying prepayment speed
7. Analysis of pass through securities
22. MODULE 22: COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
1. CMO basics
2. One sided PACs
3. Floating rate CMO structures
4. Stripped mortgage backed securities
23. MODULE 23:ANALYTIC TOOLS FOR MBS
1. Total return analysis
2. Option valuation of pass through securities
3. Estimating price volatility

### Do you have the right background for Fixed Income Mathematics: Pricing and Valuation of Bonds?

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3. We stay committed to providing you real value. Again, your success is paramount; we will register you only if you have the skills to succeed.
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