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Fixed Income (SFI)


Mele A.

Course director

Pankratov A.



This course provides a grounding in recent developments in fixed income security pricing, hedging and portfolio management that insists on both conceptual evaluation methods and the many details arising in market practice.

By the end of the course, the students will be familiar with a variety of topics, including (i) the institutions, organization and conduct of the fixed income markets; (ii) the basic techniques to analyze and hedge fixed income products, such as "curve fitting", "bootstrapping", duration, convexity, duration-based hedging and asset-liability management; (iii) the analysis of the "destabilizing" effects related to the use of certain derivatives written on fixed income instruments; (iv) the forces, or "factors", driving the variation in the entire spectrum of interest rates at different maturities; (v) the main evaluation tools, which can be applied to evaluate a wide range of products (trees, no arbitrage trees, calibration and continuous time models); (vi) the main fixed income products such as government bonds, corporate bonds (convertible, callable, puttable), and their evaluation; (vii) plain vanilla interest rate derivatives (interest rate swaps, caps, floors, swaptions, etc.); (viii) the process of securitization and the resulting structured products, with particular reference to collateralized debt obligations, N-th to default, and mortgage-based securities.

Part I: Markets, Institutions and Conventions
- Overview of Debt Contracts
- Market Players
- Classification of Debt Securities
- The Varied Infrastructure of Fixed Income Markets and Allocation Mechanisms
- Present values, Yields and Interest Rate Conventions
Part II: Fixed Income Markets and the Macroeconomic Ecosystem
- Factors Driving the Yield Curve
- Predictability
- The Yield Curve and the Business Cycle
- Short and Long Maturities, the FED and Interest Rate Volatility
Part III: Evaluation in an Idealized World
- Introduction to Continuous Time Evaluation Methods Models for Buy Side
- Models for Sell Side
- Negative Convexity. Hedging Convexity and Systemic Risks
- Convertible Bonds
- Interest Rate Derivatives (Bond Options, IRS, IR-Swaptions, Caps&Floors)
- Modeling Skews in Rate Markets: SABR Models
- Risky Debt and Capital Structure Arbitrage
- Default as a Tail Event Risk
- Credit Derivatives (CDS and CDS Indexes)
- Structured Credit Products (CDO, n-th to Default). Evaluation through Simulation and Copulae Functions.
Part IV: Institutions Details and the Market Practice
- The Role of Disclosures in Bond Markets
- Syndicate Procedures and Underwriting Documents
- Registration and Distribution Processes
- Manipulative Practices and Market Activities During Distributions
- Liabilities and Due Diligence
- Rules of the Self-Regulatory Organizations
- Private Placements
- Shelf Registrations (Rule 415)
- International Financings
- Commercial Paper
- Innovative Financing Techniques
- Convertible, Exchangeable and "Linked" Securities; Warrants
- Transactions with Security-holders: Stock Repurchases, Debt Restructurings and Rights Offerings
- Asset-Backed Securities
Selected chapters of:
- Johnson, Charles J. Jr, Joseph McLaughlin and Eric S. Haueter (2015): Corporate Finance and the Securities Laws. Wolter Kluwer Legal & Regulatory U.S.
- Mele, Antonio (2017): Lectures on Financial Economics. Book manuscript available from