25728 Fixed Income Analysis
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particular session, location and mode of offering is the authoritative source
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Subject handbook information prior to 2020 is available in the Archives.
Credit points: 6 cp
Subject level:
Postgraduate
Result type: Grade and marksRequisite(s): 25721 Investment Management
These requisites may not apply to students in certain courses.
There are course requisites for this subject. See access conditions.
Description
The market for fixed income financial instruments is the financial sector's largest worldwide. This specialised subject focuses on the conceptual and theoretical aspects of interest rates and interest rate risk management in local and international fixed income markets.
The subject includes material on the term structure of interest rate, including spot, forward and swap interest rate structures. The pricing of fixed and floating rate bond pricing is addressed. The role of bond portfolio strategies in generating speculative profits and in the reduction or portfolio risk is examined in depth. Students are provided with an insight into financial engineering in their construction of fairly priced structured notes.
The subject focuses students on the practical problems of fixed income portfolio management through a series of hands-on, computer-based simulation exercises. This is a quantitative-based subject where applied problems and calculation are emphasised.
Subject learning objectives (SLOs)
| 1. | Explain the characteristics of the term structure of interest rates and be able to transform a coupon bond based term structures into their zero-coupon, forward and par rate equivalents |
|---|---|
| 2. | Evaluate the characteristics of fixed income portfolios such as duration, basis point value and convexity |
| 3. | Analyse the risks and profitable opportunities of fixed interest portfolios |
| 4. | Hedge the risk associated fixed income positions |
| 5. | Construct and price structured notes from a combination of fixed income bonds and interest rate swaps |
Contribution to the development of graduate attributes
This is a specialised subject focusing on many aspects of the valuation and risk assessment of fixed income securities and portfolios. The subject is designed to ensure that students are provided with a detailed analysis of the techniques used by analysts and fund managers in the construction of yield curves, analysis and valuation of fixed income securities and the construction and management of bond portfolios and structured financial instruments.
Successful completion of this subject makes a contribution to students acquiring all five Faculty of Business Graduate Attributes. However, the subject makes a particular and significant contribution to the attributes of critical thinking, analytical skills and business practice oriented skills via the (1) absorption of the subject material, (2) the class discussion, (3) the completion of the applied Excel exercises and problems posed and solved during the bond portfolio management simulations.
Teaching and learning strategies
The course will be taught using a combination of face-to-face lectures/seminars, class discussion, in-class applied exercises and on-line learning. 25728 FIA classes are devoted to more than delivering the subject material. Class discussions are employed to promote and reinforce understanding. Applied Excel exercises are undertaken by students, during class, - either individually or in groups, to apply theoretical concepts to specific financial market and investment situations. A highlight of the course is the undertaking of bond portfolio management simulations where students face the same issues problems that financial sector traders and managers face in the day to day performance of their professional occupation.
The lecture program is designed to encourage interaction between the lecturer and students. To facilitate this, students are required to undertake pre-class work, details of which are in the weekly program.
The subject is technical and quantitative and should only be attempted by students with a solid mathematical grounding and with high-level computer spreadsheet expertise.
Online resources will be used cover the basic financial notions underpinning the different portfolio strategies and provide examples of existing financial products and strategies. The learning management system is central to the provision of digital resources for this subject. For each class the following resources reside on the subjects Subject Documents section:
- Lecture background notes,
- Lecture PowerPoint lecture notes,
- Problems and Exercises documents and,
- Excel Exercises workbook
Content (topics)
- The financial environment and influences on interest rates
- The term structure of interest rates; zero-coupon spot rates forward rates and swap rates.
- Pricing and hedging fixed and floating rate bonds
- Interest rate derivatives, mortgaged backed securities, option embedded instruments
- Risk management characteristics of fixed income portfolios.
- Bond portfolio management simulations.
- Interest rate futures and structured fixed income instruments
Assessment
Assessment task 1: Quizzes (Individual)
| Objective(s): | This addresses subject learning objective(s): 1, 2, 3 and 4 |
|---|---|
| Weight: | 20% |
Assessment task 2: Bond Portfolio Management Project (Group/Individual)
| Objective(s): | This addresses subject learning objective(s): 1, 2 and 3 |
|---|---|
| Weight: | 20% |
Assessment task 3: Final Exam (Individual)
| Objective(s): | This addresses subject learning objective(s): 1, 2, 3, 4 and 5 |
|---|---|
| Weight: | 60% |
| Length: | The exam has a two-hour duration and and will conducted as an AI online Canvas quiz assessment. |
| Criteria: | The criteria for marking are numerical accuracy, problem solving proficiency and written explanation. |
Minimum requirements
Students must achieve at least 50% of the subject’s total marks.
Required texts
No Text is required. A set of lecture notes is provided on UTS Online
References
Fabozzi, F. J., 2012, Bond Markets, Analysis and Strategies, 8th edition, Prentice-Hall,
Hunt, B., and C. Terry, 2018, Financial Institutions and Markets, 8th edition, Cengage.
Other resources
The lecture notes will be available on UTSOnline. Students will be provided with problem sets to be discussed in class. These will also be available from UTSOnline.