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Understanding Fixed Income Derivatives and Duration - Course Outline

This course, MGT 4850 at the University of Lethbridge, focuses on the fundamental concepts of fixed income derivatives, emphasizing the importance of duration as a measure of bond price sensitivity to interest rate changes. Students will explore the calculations of duration, bank and bullet immunization strategies, and the impact of convexity on bond pricing. Additional topics include pricing volatility, Babcock’s Formula, and the structure of coupon interest rates. Engage with practical insights into the bond market and enhance your financial acumen.

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Understanding Fixed Income Derivatives and Duration - Course Outline

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Presentation Transcript

  1. Fixed Income Derivatives MGT 4850 Spring 2008 University of Lethbridge

  2. Outline of the class • Duration summary • Meaning of duration other math insights

  3. Duration(summary of previous class) • Measure of the sensitivity of the price of a bond to changes in the interest rate at which Cash Flows are discounted • Calculation • Bank Immunization • Bullet Immunization • Convexity

  4. Meaning of Duration • Weighted Average of the bond’s payments • Bond’s price elasticity with respect to its discount rate • Discount factor elasticity • Price volatility

  5. Babcock’s Formula • Weighted average of “current yield” and PVIF

  6. Duration Patterns • Maturity

  7. Duration Patterns • Coupon

  8. Interest Rate Term Structure • http://www.smartmoney.com/onebond/index.cfm?story=yieldcurve

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