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Module Specifications..

Current Academic Year 2023 - 2024

Please note that this information is subject to change.

Module Title Fixed Income Securities (Intermediate)
Module Code MS425
School School of Mathematical Sciences
Module Co-ordinatorSemester 1: Paolo Guasoni
Semester 2: Paolo Guasoni
Autumn: Joshua Aurand
Module TeachersPaolo Guasoni
Joshua Aurand
NFQ level 8 Credit Rating 7.5
Pre-requisite None
Co-requisite None
Compatibles None
Incompatibles None

This undergraduate course introduces the main tools for pricing and hedging fixed-income securities and their derivatives, with emphasis on the application of main models. Interest-rate contracts: bonds, swaps, caps and floors, options, swaptions. Term-structure estimation: bootstrap, splines. Shortrate models: Vasicek, Cox-Ingersoll-Ross, and related models. Forward-rates and Heath-Jarrow-Morton approach. Market (LIBOR) models.

Learning Outcomes

1. Understand interest rate contracts
2. Use mainstream models to price fixed income securities
3. Estimate the term structure
4. Apply common models to hedge and immunize liabilities linked to interest-rates
5. Derive the dynamics of bonds from that of interest rates and viceversa
6. Recognize arbitrage opportunities among interest-rate contracts, or lack thereof

Workload Full-time hours per semester
Type Hours Description
Directed learning2Final Exam
Seminars5Attendance of Research Seminars
Independent Study150Independent work on textbooks and related papers
Total Workload: 193

All module information is indicative and subject to change. For further information,students are advised to refer to the University's Marks and Standards and Programme Specific Regulations at: http://www.dcu.ie/registry/examinations/index.shtml

Indicative Content and Learning Activities

Interest Rates and Related Contracts
Zero-Coupon Bonds, Interest Rates, Money-Market Account and Short Rates, Coupon Bonds, Swaps and Yields, Market Conventions, Caps and Floors, Swaptions

Estimating the Term-Structure
Bootstrapping, Non-parametric Estimation Methods, Parametric Estimation Methods, Principal Component Analysis

Short-Rate Models
Diffusion Short-Rate Models, Inverting the Forward Curve, Affine Term-Structures, Vasicek Model, CIR, Dothan Model, Ho–Lee Model, Hull–White Model

Heath–Jarrow–Morton (HJM) Methodology
Forward Curve Movements, Absence of Arbitrage, Short-Rate Dynamics, HJM Models, Proportional Volatility, Fubini’s Theorem

Forward Measures
T -Bond as Numeraire, Bond Option Pricing, Black–Scholes Model with Gaussian Interest Rates

Forwards and Futures
Forward Contracts, Futures Contracts, Interest Rate Futures, Forward vs. Futures in a Gaussian Setup

Market Models
Heuristic Derivation, LIBOR Market Model, LIBOR Dynamics Under Different Measures, Implied Bond Market, Implied Money-Market Account, Swaption Pricing, Monte Carlo Simulation of the LIBOR Market Model, Volatility Structure and Calibration, Continuous-Tenor Case

Assessment Breakdown
Continuous Assessment0% Examination Weight100%
Course Work Breakdown
TypeDescription% of totalAssessment Date
Reassessment Requirement Type
Resit arrangements are explained by the following categories;
1 = A resit is available for all components of the module
2 = No resit is available for 100% continuous assessment module
3 = No resit is available for the continuous assessment component
This module is category 1
Indicative Reading List

  • Damir Filipovic,: 0, Term-Structure Models: A Graduate Course, 978-3-540-09726-6
  • Pietro Veronesi: 2010, Fixed income securities, Wiley, Hoboken, N.J., 0470109106
Other Resources

Programme or List of Programmes
BSSAStudy Abroad (DCU Business School)
BSSAOStudy Abroad (DCU Business School)
FIMB.Sc. Financial Mathematics
HMSAStudy Abroad (Humanities & Soc Science)
HMSAOStudy Abroad (Humanities & Soc Science)
IESAStudy Abroad (Institute of Education)
IESAOStudy Abroad (Institute of Education)
SHSAStudy Abroad (Science & Health)
SHSAOStudy Abroad (Science & Health)

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