Bond Market

First, the theoretical foundations of each topic are presented. Second, the students solve case studies to apply
the theoretical background. Third, the students need to work on a group assignment with oral presentation
about
one of the topics discussed in classes.
The evaluation will be done through a written test (60%) and, in a group work with oral defense (40%).

The main purpose of this course is to enable students to understand the mechanisms of the bondmarket, value
a bond contract, compute rates of return, use immunization strategies, and use curve fitting techniques.
1. Value and formulate a trading decision for a bond.
2. Compute the rate of return of an investment in the bond market.
3. Implement immunization strategies.
4. Estimate and interpret a yield curve

1. The bondmarket: Concepts and characteristics.
2. Features of a bond contract.
3. Spot rates, forward rates, and discount factors.
4. Fair value and trading rules: Treasury versus corporate bonds; Fixed versus floating rate bonds.
5. Rates of return: Yield tomaturity and realized rate of return.
6. Rating and credit risk.
7. Volatility, duration and convexity.
8. Immunization.
9. Estimation of the yield curve.

NAO