Syllabus

Title
0392 Y1P1 Financial Markets and Instruments
Instructors
Univ.Prof. Dr. Rainer Jankowitsch
Contact details
rainer.jankowitsch@wu.ac.at
Type
PI
Weekly hours
2
Language of instruction
Englisch
Registration
08/31/21 to 09/24/21
Registration via LPIS
Notes to the course
Subject(s) Master Programs
Financial Markets and Instruments
Dates
Day Date Time Room
Tuesday 10/05/21 09:00 AM - 01:00 PM Online-Einheit
Tuesday 10/12/21 09:00 AM - 01:00 PM Online-Einheit
Tuesday 10/19/21 09:00 AM - 01:00 PM Online-Einheit
Monday 10/25/21 09:00 AM - 01:00 PM Online-Einheit
Tuesday 11/02/21 09:00 AM - 01:00 PM Online-Einheit
Tuesday 11/09/21 09:00 AM - 01:00 PM Online-Einheit
Tuesday 11/16/21 08:30 AM - 10:00 AM TC.0.01 ERSTE
Tuesday 11/23/21 12:00 PM - 01:30 PM D3.0.233

On this page:

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Contents

General overview & money markets

Foreign exchange markets

Bond markets & no-arbitrage valuation

Bond characteristics & floating rate notes

Interest swap markets & yield curve estimation

Equity markets & financial futures markets & option markets

Credit markets

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Learning outcomes

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
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Attendance requirements

There is a full attendance requirement for this course.

The minimum attendance is 80%, i.e. one lecture can be missed.

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Teaching/learning method(s)

The course is mainly taught using a combination of lectures and mini cases. The lectures are aimed at providing the core information about institutional knowledge and at deducing theoretical results. The mini cases will be worked out and discussed in course and should give the opportunity to apply theoretical knowledge to practical problems and help to comprehend the key ideas of the lectures. At the beginning of the next unit a short test will be used to assess the students’ understanding of the topic. A home assignment will be given for solving a mini case in the field of yield curve estimation.

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Assessment
  • 60% final written exam
  • 40% class participation (mini tests)

To receive a pass grade, you need to get 50% of the points in the final exam (i.e., 30 out of 60) and you need 50% overall.

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Prerequisites for participation and waiting lists
  • 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)
  • For some units more advanced knowledge of linear algebra (duality property of linear programs) and calculus (Taylor-series expansion) will be helpful
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Readings
1 Author: Elton, E. and M. Gruber
Title:  Modern Portfolio Theory an Investment Analysis

Publisher: New York
Edition: 5th ed.
Remarks: chapter 20-21
Year: 1995
2 Author: Hull, J.
Title:  Options, futures, & other derivatives   

Publisher: Upper Saddle River
Edition: 7th ed.
Remarks: chapter 1-3 and 6-8
Year: 2008
3 Author: Jankowitsch R. and S. Pichler
Title: Estimation of zero-coupon yield curves for EMU government bonds Wien.

Publisher: WU
Remarks: working paper
Year: 2003
4 Author: Jankowitsch R. and S. Pichler
Title: Parsimonious estimation of credit spreads

Publisher: The Journal of Fixed Income
Edition: 14 (3)
Year: 2004
5 Author: JP, Morgan
Title: CDO Handbook

Publisher: New York
Year: 2002
6 Author: Morgan, Stanley
Title: Credit Derivatives Insights

Publisher: New York
Year: 2008
7 Author: Varian H.
Title: The arbitrage-principle in financial economics 

Publisher: Journal of Economic Perspectives
Edition: 1 (2), 55-72
Year: 1987
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Availability of lecturer(s)
rainer.jankowitsch@wu.ac.at
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Other
Useful websites:
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Unit details
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.
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.
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.

  • Specific readings:
    • Varian H. (1987), The arbitrage-principle in financial economics, Journal of Economic Perspectives 1 (2), 55-72.
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.

  • Specific readings
    • Elton, E. and M. Gruber (1995), Modern Portfolio Theory an Investment Analysis, New York , 5th ed., chapter 20-21.
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.

  • Specific readings:
    • Jankowitsch R. and S. Pichler (2003), Estimation of zero-coupon yield curves for EMU government bonds, working paper, WU Wien.
    • Jankowitsch R. and S. Pichler (2004), Parsimonious estimation of credit spreads, The Journal of Fixed Income 14 (3).
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):

  • Specific readings:
    • Hull, J. (2008), Options, futures, & other derivatives, Upper Saddle River, 7th ed., chapter 1-3 and 6-8.
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.
8 Final exam
Last edited: 2021-09-02



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