Fixed Income Mathematics: Pricing and Valuation of Bonds
Learn how to determine fair values, yields and risk measures for fixed income securities. The course emphasizes conceptual understanding, but maintains a level of rigor suitable for the development of an effective fixed income toolkit.
CPE Credits: 7
This course is a component of the Fixed Income Professional Certificate.
Prerequisite knowledge:
- Intermediate MS Excel skills
- Elementary differential calculus
- Basic probablility and statistics
- Basic familiarity with fixed income instruments
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To make it even easier to learn, you can finance your program through Affirm.
Loans offered through Affirm are available in the U.S. and Canada.
Module 1: Essential Mathematics
- Geometric series
- Derivatives
- Taylor series
- Logarithmic and exponential functions
- (Easy) integrals
Module 2: Basic Instruments
- Zero coupon bonds
- Annuities
- Perpetuities
- Coupon Bonds: Bullets and amortizers
- Par coupon rates
- Floating rate bonds
Module 3: Measures of Yield and Return
- Discount rates
- Yields
- Interest rates
- Rates of return: Expected, contractual and realized
- Yield-to-maturity: What it does and does not mean
Module 1: Term Structures of Rates and Yields
- Forward rates
- Bootstrapping zeros
- Desirable properties of term structures
- Interpolation techniques
- Splines
- Yield curve fitting
Module 2: Measures of Risk
- Taylor series and 'sensitivity' measures
- Macaulay duration
- Yield duration: Macualay and modified
- Dollar duration
- Key rate duration
- Macaulay convexity
- Yield convexity
Module 3: Elements of Fixed Income Portfolio Risk Management
- Duration of a portfolio
- Convexity of a portfolio
- Immunization
- Computing Value at Risk for fixed income portfolios
Module 4: Corporate Bonds
- Credit risk
- Inferring (risk-neutral) default probabilities from bond prices