Bond Analysis - Level II

Day One

09.00 - 09.15  Welcome and Introduction

09.15 - 12.00  Review of Bond Analytics

• Price and Yield Analysis
• Risk Analysis
• Portfolio Analysis

Zero Coupon Analysis

• Spot Rates vs. Coupon Yields
• The Par Curve
• Constructing the Spot-Rate Curve
• Bootstrapping
  • Cubic Spline Smoothing
  • Forward Rates
• Using the Yield Curve to Price Bonds
• Exercises

12.00 - 13.00  Lunch

13.00 - 16.30  Pricing Floaters

• General Features of Floaters
• Discounted Margin Model
• Valuing Floaters using Forward Rates
• Price Sensitivity of Floaters
• Valuing Inverse Floaters and CMS Floaters
• Small Exercises

Pricing Inflation-Linked Bonds

• Types of Inflation-Linked Structures
  • TIPS
  • Bonds with deflation protection
• Estimating the Cash-Flow
• Real and Nominal Yield
• Backing out Inflation Expectations
• Inflation-Adjusted Risk
• Exercises

Day Two

09.00 - 12.00  Principal Component Analysis

• Common Factors Affecting Bond Returns
• Overview of Multi-Factor Interest Rate Risk Models
• The Factor Model
  • Eigenvalues, Eigenvectors and the Yield Curve
  • Calculating and Interpreting Factor Loadings
• Using the Factor Model to Calculate VaR for a Bond Portfolio
• Factor Immunization for Hedging Yield Curve Fluctuations
• Monte Carlo Simulation Using PCA
• Exercises

12.00 - 13.00  Lunch

13.00 - 16.30  Analysis of Callable Bonds

• Price Yield Relationship of Callable Bonds
• Price-yield diagram
  • Why duration can be negative
  • Why convexity can be negative
• A Generalised Model for Valuing Bonds with Embedded Options
• Pre-Payment Models
• Binomial Interest Rate Trees
• Option-Adjusted Analysis
  • Option Adjusted Yield and Duration
  • Option Adjusted Spread
  • Effective Duration
• Using Monte Carlo Simulation to Analyze Callable/Pre-payable Bonds
• Exercises

Day Three

09.00 - 12.00  Analysis of High-Yield Bonds

• The High Yield Market
• High Yield Security Valuation
  • Factors Affecting the Spread
  • Modelling the Yield of Non-Investment Grade Bonds
• High Yield Security Risk Analysis
  • Historical Default and Recovery Rates
  • Rating Migration and Credit Quality Correlation
  • Modelling Bond Rating Changes for Credit Risk Estimation
• Case Study: Using CreditGrades™ to Value Corporate Bond
• Exercises

12.00 - 13.00  Lunch

13.00 - 16.00  Advanced Bond Trading and Investment Strategies

• Portfolio Optimisation
  • Single-Period Immunisation
  • Multi-Period Immunisation
• Yield Curve Plays
• International Bond Investing
  • Currency-Hedged Bond Investments
  • Constructing Global Bond Portfolios
• High Yield Portfolio Management
• Market-neutral Strategies
• Convertible Arbitrage
• Investing in Asset-Backed Securities
• Exercises

Test, Evaluation and Termination of the Seminar