Syllabus
Registration via LPIS
| Day | Date | Time | Room |
|---|---|---|---|
| Monday | 09/29/14 | 09:00 AM - 01:00 PM | TC.2.03 |
| Wednesday | 10/08/14 | 10:00 AM - 02:00 PM | TC.5.03 |
| Tuesday | 10/14/14 | 09:00 AM - 01:00 PM | TC.3.03 |
| Tuesday | 10/21/14 | 09:00 AM - 01:00 PM | TC.3.03 |
| Tuesday | 10/28/14 | 09:00 AM - 01:00 PM | TC.3.03 |
| Tuesday | 11/04/14 | 09:00 AM - 01:00 PM | TC.3.03 |
| Tuesday | 11/11/14 | 10:00 AM - 12:00 PM | TC.2.02 |
| Tuesday | 12/02/14 | 08:00 AM - 10:00 AM | TC.3.09 |
After completing this course the student will have the ability to:
- recall the institutional features of the most important financial markets and the financial instruments traded therein (money market deposits, FRAs, FX cash and forward transactions, bonds, floating rate notes, interest rate swaps, financial futures, options, single-name credit derivatives, multi-name credit derivatives)
- differentiate between the organizational forms of trading (OTC vs. exchanges)
- recognize the relation between financial markets and financial valuation models, in particular the static no-arbitrage framework
- apply valuation models and risk analysis models for fixed income instruments
- perform the estimation of yield curves
- make practical use of financial data series.
This course will also contribute to the student’s ability to:
- demonstrate effective team skills in order to contribute appropriately to the production of a group output
- work and communicate effectively in a team situation and to function as a valuable and cooperative team member
- participate in group discussions/team work
- Use financial market information for empirical research
- 40% final written exam
- 40% class participation (short tests, mini cases, presentations)
- 20% home assignment (yield curve estimation).
To receive a pass grade, a positive result on each element (final written exam, class participation, home assignment) is necessary. To avoid the potential free-rider problem related to group work, the final exam will be strongly related to the problems already discussed in the mini cases. There will be (only) one additional opportunity to (re)take the final exam. The forms of class participation on which students will be assessed are short quizzes, general discussion, partner groups, group work (4-6 people), and mini tests.The assessment of the home assignment will be based solely on the quality of the results. Students are free in the choice of the computational tools. It is the expressed policy of the class that late assignments will not be accepted by any circumstances.
- Basic knowledge in linear algebra (matrix operations, systems of linear equations, linear programming)
- Basic knowledge in analysis (simple calculus)
- Basic knowledge in statistics (linear regression)
- Basic knowledge in computing (solving nonlinear optimization problems)
- Basic knowledge in finance (compounding, NPV calculation)
- Basis knowledge in ‘Financial English’ as used in the bridging course in finance
- For some units more advanced knowledge of linear algebra (duality property of linear programs) and calculus (Taylor-series expansion) will be helpful
| Unit | Date | Contents |
|---|---|---|
| 1 | General overview & money markets: After attending this session students should be able to recall the institutional features of money markets (deposits, FRAs) and to differentiate between OTC and exchange markets. The students should also be able to apply a simple valuation-by-replication model to money market instruments.
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| 2 | Foreign exchange markets: After attending this session students should be able to recall the institutional features of FX market instruments (spot, forward). The students should also be able to apply a simple valuation-by-replication model to FX instruments.
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| 3 | Bond markets & no-arbitrage valuation: After attending this session students should be able to recall the institutional features of bonds and bond markets. The students should also be able to apply a simple valuation-by-replication model to straight bonds. Furthermore, they should be able to recognize the static no-arbitrage valuation framework in the bond market context.
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| 4 | Bond characteristics & floating rate notes: After attending this session students should be able to recall the institutional features of floating rate notes and the most widely used bond characteristics. The students should also be able to apply a simple valuation-by-replication model to floating rate bonds and to perform a simple risk analysis based on the duration model. Furthermore, students should be able to explain why the use of the yield-to-maturity concepts is likely to produce undesired results.
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| 5 | Interest swap markets & yield curve estimation: After attending this session students should be able to recall the institutional features of interest swap markets and to apply a simple valuation-by-replication model to interest rate swaps. The students should also be able to use swap rates to infer discount factors. Furthermore, they should be able to estimate a yield curve in a suitable functional form using bond market data.
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| 6 | Equity markets & financial futures markets & option marketsAfter attending this session students should be able to recall the institutional features of equity markets (stock exchanges, equity indices), financial futures markets, and option markets. Students should in particular be able to differentiate between the roles of the important agents in these markets (exchanges, clearing houses, market makers, brokers):
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| 7 | Credit markets: After attending this session students should be able to recall the institutional features of single-name and multi-name credit derivatives, most notably corporate bonds, credit defaults swaps (CDS) and collateralized debt obligations (CDO). The students should also be able to interpret credit ratings and rating migrations. Furthermore, they should be able to use the concept of expected and unexpected loss for valuation and risk analysis.
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| 8 | Final exam |
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