Fixed Income Mathematics
Day One
09.00 - 09.15 Welcome and Introduction
09.15 - 12.00 Introduction to Fixed Income Mathematics
- Why Understanding Fixed Income Mathematics Has Become More Important
- Building Blocks of Fixed Income Analysis
- Uses of FI Mathematics in Bond Markets
Review of Basic Financial Mathematics
- The Anatomy of Fixed Income Instruments
- Establishing Cash Flows of FI Instruments
- Time Value of Money
- Calculating Present Value
- Calculating Future Value
- Different Compounding Conventions
- Discount Factors
- Annuities
- Present Value of Annuities
- Future Value of Annuities
- Exercises
12.00 - 13.00 Lunch
13.00 - 16.30 Bond Analytics - Yield and Risk
- Price and Yield Analysis
- The Price/Yield Relationship
- Calculating Yield Using Different Conventions (Euro, US, Japan,..)
- Decomposing and Interpreting Yield
- Exercises
- Risk Analysis
- Risks of Bond Investing
- Macaulay Duration
- Modified Duration, BPV and Dollar Duration
- Convexity and Dollar Convexity
- Using Duration and Convexity in a Taylor Series to Estimate Price Changes
- Portfolio Key Ratios
- “Value-at-Risk” for a Bond Portfolio
- Exercises
Day Two
09.00 - 09.15 Brief recap
09.15 - 12.00 Total Return Analysis
- Calculating Expected Horizon Value
- Calculating Expected Returns
- Sensitivity Analysis
- Using “Babcocks Formula” in Total Return Analysis
- Exercises
Yield Curve Analysis
- Introduction to Yield Curve Analysis
- Types of Yield Curve
- Estimating the Zero Coupon Curve
- Bootstrapping
- Cubic Splines of Discount Factors
- Applications of the Yield Curve
- Pricing Bonds
- Calculating Forward Rates
- Exercises
12.00 - 13.00 Lunch
13.00 - 16.00 Bond Financing with REPOs
- Introduction to REPOS as a Financing Tool
- Types of REPOs
- REPO Pricing
- Cost-of-Carry Model
- Calculating the Repo Rate
- Calculating the Repurchase Price
- Examples of Bond Financing Transactions with REPOS
- Managing Counterparty Risk in REPO Transactions
The Term Structure of Volatility
- Introduction to the Term Structure of Volatility
- How the Term Structure of Volatility is Estimated
- “Mean Reversion” Explained
- Examples of How the TS of Volatility is Used in Fixed Income Pricing
Summary, Evaluation and Termination of the Seminar
