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Fixed Income Derivatives

Fixed Income Derivatives. MGT 4850 Spring 2008 University of Lethbridge. Duration Calculations. Outline of the class. Duration summary Meaning of duration other math insights. Duration ( summary of previous class).

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Fixed Income Derivatives

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

  2. Duration Calculations

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

  4. 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

  5. Convexity

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

  7. Bond Price elasticity in Excel

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

  9. Duration Patterns • Maturity

  10. Duration Patterns • Coupon

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

  12. Treasury Futures contracts • http://jobs.efinancialcareers.co.uk/job-4000000000246502.htm/keywordAny=fixed%20income%20derivatives/Calls Trading the yield curve NOB spreads Trading spreads TED spreads Discount yield vs. bond equivalent yield

  13. Eurodollar Futures and swaps • Plain Vanila Swap • Foreign Currency swap • Circus swap • Calibration of models – arbitrage free pricing models

  14. Credit Risk • Credit derivatives • Credit default options • Credit linked notes • Total return swaps

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