Fixed Income Security Markets (Faculty: Dr. Golaka C. Nath)
PGP 2005-2007 : Term-V
COURSE OUTLINE
Objectives:
This course will explore the various facets of fixed income securities and the markets in which they trade. Bonds as a source of capital and their valuation using the principles of time value of money would have received a fair amount of attention in the first year foundation courses in Finance. However in order to ensure that all the students are at the same level of understanding, and to quickly refresh the concepts, a few initial lectures will be devoted to financial markets, institutions, and instruments, and to principles of bond valuation using the idea of time value of money.
Thereafter the focus will shift to the valuation aspects of various fixed income securities with a limited focus on the intricacies of the markets in which they trade. The rationale is that features of markets will be dealt with adequately in the course on financial markets and consequently there is no need to provide such coverage in this course.
Interest rate derivatives constitute an important part of fixed income securities. In order to ensure that there is as little overlap as possible, interest rate futures will be covered in detail in the OFS course, whereas interest rate swaps and options will be dealt with extensively in this course. Serious students of Finance are therefore encouraged to take both the courses if adequate credits are available. In any case the lecture on interest rate swaps and options will be scheduled in such a fashion that even those students who have taken OFS but not this course can attend.
Detailed Course Schedule:
1. Introduction to Fixed Income Securities Market
a. Policy Developments
b. Products
c. Platforms and Systems
d. Information availability
2. The Primary Market
a. Issuance Needs and Policy
b. Auctions
c. When Issued Market
d. Empirical Analysis
3. Time Value of Money
a. Compounding Rules
b. Market Conventions
c. International Market Quotations
d. Bond Calculator Usage
4. Yield Curves
a. YTM Curve
b. Zero Coupon Yield Curve
c. Interpolation
d. Bootstrapping
e. Benchmark Yield Curve
5. Fixed Income Valuation
a. Valuation of Bond
b. Liquidity Premium
6. Fixed Income Market Risk Analysis
a. Duration
b. Convexity
c. Option embedded Bonds
7. Bond Futures
a. Contract Specification
b. Conversion Factors
c. Cheapest to Deliver Concept
d. Hedging with Bond Futures
e. Indian Fixed income Futures Market
8. Fixed Income Repo Market
a. Classic Repo
b. Buy and Sell back repo
c. Securities Lending