Course Outline

Batch: 2014-16

Term: VI

Course: Fixed Income Securities

Credits: 2.5

Course Instructors: Prof. Hanish Rajpal

1. Program level Goal: Demonstrate decision making skills in solving business problems
2. Objectives of the Course:
The basic objective of this course is to familiarize students with fixed income securities and their
derivatives. The specific objectives are as follows:
To identify various products under fixed income domain.
To promote an understanding of the functioning of fixed income market.
To introduce the valuation techniques for fixed income securities and apply the same to plain-vanilla
bonds and complex securities.
To analyze various risk associated with investing in fixed income securities.
To teach the techniques for hedging the risks.

3. Student Learning Outcomes:

At the end of the course, the students would be able to:
1.
2.
3.
4.
5.
6.

Understand structure of fixed income securities and fixed income markets.

Identify cash flow streams of simple and complex fixed income instruments
Value simple as well as complex fixed income securities and their derivatives
Assess the risk associated with investing fixed income securities
Measure the risk using techniques such as duration, convexity, VaR and expected shortfall
Apply valuation and risk management tools for fixed income portfolio management

4. Prerequisites:
Students undergoing this course are expected to have a good understanding of concept of time value
of money
5. Basic Text Book:
Fabozzi, F. J.,(2011). Bond markets: Analysis and Strategies, Pearson, New Delhi.
6. Reference Books:

1. Tuckman, B., (2002). Fixed Income Securities: Tools for todays market, John Wiley & Sons, New
Jersey, USA.
2. Sundaresan, S., (2011). Fixed Income Markets and Their Derivatives, Elsevier, Gurgaon.
7. Session Plan:
Session

Topic

No
1

Pre class
preparation
details for
students

Introduction to bonds and its features and Indian Debt market

2&3

Pricing of bonds

Ch.2

Measuring Yield

Ch.3

Bond Price Volatility Duration

Ch.4

Bond Price Volatility Convexity

Ch.4

7&8

Term structure of interest rates Risk Premium, Yield curve and

constructing theoretical spot rate curve

Term structure model Forward rates and Determinants of term

10 & 11

structure
Analysis of bonds with embedded option Callable & puttable

12

bonds
Analysis of convertible bonds

13

Simulation

14 & 15

Mortgage Pass through Securities & CMOs

16

Active Bond portfolio management

17

Bond performance measurement and evaluation

18

Interest rate Swaps

19

Guest Lecture

20

Guest Lecture

Ch.5
Case:
Deutsche
Bank: Finding
Relative Value
Trade (HBSP:
9-205-059)
Ch. 5
Ch. 16
Case: TComm
Ltd.
Ch.18
Case:
STMicroelectro
nics N.V.,2003
Convertible
Bond Offering
(9-204-092)

Ch.11
Case: Valuation
of Mortgage
Pass-Through
Securities
Ch.19
Ch.22
Ch.23 & 24

8. Pedagogy:
The Pedagogy consists of a mix of lectures, exercise, individual & group work, real life situation &
case analysis and guest lectures.
9. Evaluation Scheme:
Sr. No.

Components

Weightages

Related Learning Outcomes

Class test

20%

Learning outcomes 1,2 & 3

Simulation

20%

Learning outcomes 2, 3 & 4

Mid-Term Examination

20%

Learning outcomes 1, 2, 3, 4 & 5

End Term Examination

40 %

Learning outcomes 1,2,3,4,5 & 6

10. Career Focus: (only in the case of Electives, not for core courses)
Fixed income securities is a specialized field in the domain of investment management and requires an indepth understanding for their valuation and risk management. One would find dedicated teams for trading
and investing in such securities in an investment management/consultancy firms. Anyone who aims at a
career in investment/portfolio management, consultancy, financial services and banking would find this
course very helpful.
11. Any other Remarks:
Simulation exercise would be group work. The simulation aims to replicate the real life scenario of assetliability management in banks using fixed income securities. It will be an excel-based simulation where the
students would be required to input their responses in the excel spreadsheet. The results of the simulation
would be announced after one week.