Prague, NH Hotel Prague

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English

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Introduction to Fixed Income Mathematics

Review of Basic Financial Mathematics

Bond Analytics – Yield and Risk

Total Return Analysis

Yield Curve Analysis

Bond Financing with REPOs

Term Structure of Volatility

The purpose
of this highly practical seminar is to give you a good understanding of the
**mathematical methods used in fixed income analysis and bond trading**.
We start with general introduction to financial mathematics and its uses in the
bond markets. We then give a thorough review of the basic **building blocks in
fixed income mathematics**, including all-important concepts such as
time value of money, compounded interest, annuities, and discount factors. **We present the formulas**
for these analytics and give
examples of their **calculation under various
conventions**. We then explain the uses of the basic formulas in the
risk-return analysis of bonds and other fixed income structures.

Next, we describe how different**yield measures** are calculated and interpreted,
illustrated by a number of practical examples. We take a closer look at the
**risk analytics** such as duration, modified duration, dollar
duration and convexity. We also show how to calculate **portfolio key
ratios** for interest rate sensitivity. Further, using Total Return
Analysis, we demonstrate how you can project **returns on fixed
income investments** under various assumptions and how you can use
**scenario analysis** to obtain estimates of return
distributions for assessing the trade-off between return and risk on
single-instrument and portfolio investments.

We then give a thorough introduction to the**"yield curve" as an analysis
tool**. We explain how the spot curve is derived from market data and
we demonstrate how this curve can used for **pricing and risk analysis**
of fixed income instruments. We also explain how forward rates can be derived
from the curve and used for the projection of reinvestment rates and for
**break-even investment analysis**.

Further, we demonstrate how bond positions and portfolios can be financed using**repos**,
and we thoroughly explain the mechanics and key
concepts related to theses important financing tool. Finally, we explain the
"**term structure of volatility**" and discuss the importance of
"**mean reversion**" and other volatility features
in fixed income analysis.

Next, we describe how different

We then give a thorough introduction to the

Further, we demonstrate how bond positions and portfolios can be financed using

Day One

- Why Understanding Fixed Income Mathematics Has Become More Important
- Building Blocks of Fixed Income Analysis
- Uses of FI Mathematics in Bond Markets

- 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

- 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

- Calculating Expected Horizon Value
- Calculating Expected Returns
- Sensitivity Analysis
- Using �Babcocks Formula� in Total Return Analysis
- Exercises

- 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

- 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

- 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