Module: Fixed Income Securities (Intermediate)

Module Specifications.

Current Academic Year 2024 - 2025

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Date posted: September 2024

Module Title	Fixed Income Securities (Intermediate)
Module Code	MS425 (ITS) / MTH1058 (Banner)
Faculty	Science & Health	School	Mathematical Sciences
Module Co-ordinator	Paolo Guasoni
Module Teachers	-
NFQ level	8	Credit Rating	7.5
Pre-requisite	Not Available
Co-requisite	Not Available
Compatibles	Not Available
Incompatibles	Not Available

None

Description

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

*Type*	*Hours*	*Description*
Workload	Full-time hours per semester
Lecture	36	Classes
Directed learning	2	Final Exam
Seminars	5	Attendance of Research Seminars
Independent Study	150	Independent 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 Assessment	0%	Examination Weight	100%

Type	Description	% of total	Assessment Date
Course Work Breakdown

Reassessment Requirement Type
Resit arrangements are explained by the following categories: Resit category 1: A resit is available for both* components of the module. Resit category 2: No resit is available for a 100% continuous assessment module. Resit category 3: No resit is available for the continuous assessment component where there is a continuous assessment and examination element.
* ‘Both’ is used in the context of the module having a Continuous Assessment/Examination split; where the module is 100% continuous assessment, there will also be a resit of the assessment
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

None