BUS325 Fixed Income Instruments

The course will cover bonds, interest rate swaps and other fixed income instruments that are actively used in the Norwegian as well as international financial markets.

The students will study:

1. Why and how fixed income instruments are issued and traded at the market
2. Arbitrage free pricing of fixed income instruments with and without interest rate volatility
3. Methods to estimate credit risk
4. Valuation and risk assessment of fixed income instruments with options
5. Different theories behind the yield curve
6. Modelling of the yield curve.

In the course we will actively use and build spreadsheets (Excel) and R to analyze fixed income instruments.

Key words: government financing, private financing, hedging and investments, fixed income asset management, yield, duration, convexity, swap spreads, option adjusted spread, z-spread, credit spreads, credit risk, caps, floors, swaption, options, convertible loan, yield curve.

Knowledge

After completing the course, the student will have:

• Knowledge about fixed income markets
• Knowledge about different fixed income instruments
• Knowledge about different pricing models for fixed income instruments, including arbitrage free pricing with and without interest rate volatility
• Knowledge about risk and return in fixed income instruments
• Knowledge about credit analysis and models for credit analysis
• Knowledge about how options affect value and risk for issuer and buyer
• Knowledge about the yield curve and modelling of the yield curve

Skills

After completing the course, the student can:

• Analyze credit markets and the most important fixed income instruments
• Perform valuation of fixed income instruments
• Analyze interest rate risk
• Analyze credit risk
• Analyze bonds with options
• Analyse the yield curve based on models for shape and volatility

General competence

After completing the course:

• The student can discuss professional issues within the subject area
• The student has acquired an ability for reflection and critical thinking within the subject area
• The student can contribute to problem solving related to financing, investing, credit analysis of companies, in addition to general and quantitative market analysis