Fixed Income Mathematics: Pricing and Valuation of Bonds
Learn how to determine fair values, yields and risk measures for fixed income securities. The course emphasizes conceptual understanding, but maintains a level of rigor suitable for the development of an effective fixed income toolkit.
Rates of return: Expected, contractual and realized
Yield-to-maturity: What it does and does not mean
Module 1: Term Structures of Rates and Yields
Forward rates
Bootstrapping zeros
Desirable properties of term structures
Interpolation techniques
Splines
Yield curve fitting
Module 2: Measures of Risk
Taylor series and 'sensitivity' measures
Macaulay duration
Yield duration: Macualay and modified
Dollar duration
Key rate duration
Macaulay convexity
Yield convexity
Module 3: Elements of Fixed Income Portfolio Risk Management
Duration of a portfolio
Convexity of a portfolio
Immunization
Computing Value at Risk for fixed income portfolios
Module 4: Corporate Bonds
Credit risk
Inferring (risk-neutral) default probabilities from bond prices
Desk-Ready Skills
Understand the 'no-arbitrage' principle employed in the valuation of fixed income securities
Understand the limitations of 'yield-to-maturity' as a relative value measure
Understand the limitations of 'yield-to-maturity' as a measure of the rate of return on default free fixed income securities
Develop a 'no-arbitrage' interpretation of forward rates
Develop a deep understanding of duration and convexity and be aware of common misunderstandings of these concepts
Understand and be able to reproduce the yield and risk measures on Bloomberg YAS screens for government bonds
Derive risk-neutral default probabilities from credit risky bond prices
Portfolio managers, fixed income traders, fixed income desk quants, research analysts, and financial analysts
Prerequisite knowledge:
Intermediate MS Excel skills
Elementary differential calculus
Basic probablility and statistics
Basic familiarity with fixed income instruments
Jack Farmer
Jack is currently the Curriculum Director for the New York Institute of Finance. Farmer also acts as an outside adviser for portfolio managers at significant global investment funds. These funds included emerging markets equity funds and global macro hedge funds. Jack serves a variety of functions for the funds he advises, including the development of options strategies, quantitative strategies, and hedging strategies. Additionally, Jack specializes in capitalizing on systemic and macroeconomic imbalances in equity and fixed income markets throughout the world.
Jack specializes in training and consulting solutions for portfolio risk management, FX and interest rate derivatives and trading, equity index and volatility trading, equity derivatives and structured equity products, financial statement analysis and hedge accounting.
Education
BS in Engineering from Tulane University MBA in Finance and Accounting from Tulane University Ph.D. in Finance (ABD) from the University of Texas at Austin
Khosrow Mehrzad
Khosrow has broad experience in capital market, financial products, micro and macro analysis, and portfolio management. Khosrow founded Parsa Capital Management in 2015, where he manages an equity fund. Khosrow joined JP Morgan as analyst responsible for hedging, risk management and structuring for two special situation investment funds with over $1 billion in assets. He later became a senior portfolio manager responsible for relative values trades and spearheaded firm’s effort in launching hedge funds. Khosrow was a senior valuation analyst at Six Financial Information, responsible for pricing exotic derivatives. He also managed a team of analysts, and led the process of migrating the models from PC environment to company’s main computing platform. Khosrow worked as Co-CIO at AlphaEngine Global Investment Solutions, a startup hedge fund where he developed the tactical asset allocation models. Khosrow was a Director at Deutsche Bank Advisors oversaw a team of analysts located in India, conducted fundamental analysis of US equities, and managed an equity proprietary book. Khosrow received a BS from Sharif University of Technology, a MS from McGill University, and earned an MBA from MIT Sloan School of Management.
