Modern Fixed Income: Portfolio and Risk Management
September 13-17, 2010 • Stephen Schaefer
CANCELLED
In today’s sophisticated and highly competitive markets, fixed-income professionals need cutting-edge tools if they are to achieve superior performance.
Objectives: This course aims to provide participants with the tools they need to evaluate fixed-income instruments and portfolios in a rigorous and consistent manner. The course includes a short review of the basics of yield curve analysis – so that the necessary prior knowledge is minimal – and moves on to more advanced issues in risk management, including, multi-factor duration analysis and valuing fixed-income instruments derivatives. The last part of the course will include an introduction to credit risk modeling. The course includes numerous real word examples and participants will work in small teams on real life cases and data. We will also discuss the impact of the crisis on fixed income instruments and spreads.
Target audience: The program is designed for all those with a need for in-depth understanding of fixed-income instruments, risk analysis and portfolio management. Among others, it is suitable for portfolio managers, fixed-income analysts, fixed-income traders, fixed-income sales and research staff, credit analysts, asset-liability managers, treasury managers and consultants working in the financial sector.
Fees: The fee for this course is CHF 6’500 (prices include VAT). This covers tuition, extensive course materials (including pre-course readings), lunches, and official cocktail and dinner.
Accreditation: CFA 36 CE credits
Key topics: Finding under- and over-valued bonds using the zero coupon yield curve; measuring and managing interest-rate risk; protecting portfolios against changes in the level and shape of the yield curve; using the yield curve to predict bond returns and interest-rate volatility; valuing bonds with call and put features; calibrating interest-rate binomial trees ; valuing credit risky bonds; decomposing credit spreads into expected loss, risk premia and liquidity components; introduction to credit derivatives; valuing credit default swaps.
COURSE CONTENT
Monday
- Fixed-income pricing: No-arbitrage and limits to no-arbitrage pricing: Understanding the relation between conventional yields-to-maturity and zero coupon yields; the no-arbitrage relation between the zero coupon yield curve and bond prices; basic valuation relations for swaps and forward contracts; repurchase agreements.
- Measuring the zero coupon yield curve in practice and assessing relative value: Practical methods for fitting the zero curve; understanding richness and cheapness to the curve; trading on deviations from no-arbitrage pricing; “specialness” and liquidity effects.
Tuesday
- Managing interest-rate risk: Immunization and duration concepts, hedging the shape of the yield curve: Traditional and multi-factor duration analysis; duration for bonds with option features; managing against benchmarks; managing tracking error.
Wednesday
- Bond convexity: Relation between convexity and the cash flow profile; convexity as a measure of sensitivity to volatility risk.
- Understanding the yield curve: Expected interest rates and expected returns on bonds: Interest-rate forecasts in the yield curve; evidence on risk premia in bond markets; using the shape of the yield curve to predict bond returns.
- Interest rate binomial trees I: constructing a binomial tree to value fixed-income instruments.
Thursday
- Interest rate binomial trees II: calibrating binomial trees and valuing callable bonds: Calibrating the binomial tree to market data; using the tree to value vanilla bonds, bonds with option features and interest-rate options.
- Interest rate binomial trees III: Implications for risk premia and the shape of the yield curve: What duration means in binomial trees; relation to bond risk premia; impact of interest-rate volatility on the yield curve (“convexity effect”); “implied volatility” from the yield curve.
Friday
- Introduction to credit risk: Valuing credit risky bonds; structural and reduced form approaches to credit risk; determinants of credit spreads; liquidity and other effects on credit spreads.
- Introduction to credit derivatives and credit default swaps: Uses of credit derivatives; default correlation; valuing credit default swaps (CDSs) and collateralized debt obligations (CDOs); managing portfolios of credit risky bonds.
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