FISM-MB19

FISM-MB19
MBA-BM 2019-21: Term-V

Fixed Income Securities Markets (FIS)

Credits	3
Faculty Name	Dr.Golaka C Nath
Program	MBA-BM ( 2019-21)
Academic Year and Term	AY 2020-21/ Term V

Overview of the Course

The goal of the course is to become familiar with the theory and empirical evidence related to fixed income investment management. The course will describe the major players in the market, key institutions, broad empirical regularities, and analytical tools that are used for pricing and risk management. Some parts of the course will be fairly analytical while others will be largely institutional. Each session will be organized around one or two key chapters. In addition, class notes and articles will be used to supplement and clarify issues.

Course Objective:

The purpose of this course is to provide a sound working knowledge of fixed income markets. Much of what the students will learn is used in Treasuries of Banks and Institutions. Projects and case studies will be included to ensure better understanding of the subject matter.

Outline of Key Topics
· Overview of Debt Securities: What are debt securities? What are their sources of risk and return? Historical performance of fixed income securities.

· Major players and their functions: Banks, RBI, Primary Dealers, CCIL, Rating agencies, Sell side and Buy-side institutions.

· Major Intermediaries / Infrastructures: Repo markets, auction methods (single-price and multiple price auctions), Electronic networks, Voice-based intermediation, etc.

· Major stylized facts: a) cyclical behavior (mean-reversion) of interest rates, b) short-term yields are more volatile, c) credit spreads versus business cycles, d) relation between prepayments and swap spreads, e) flight to quality, Treasury yields and financing rates

· Bond mathematics: a) price and yield conventions, b) PVBP, Duration (modified, effective and key-rate), convexity, and negative convexity. Trade applications: spread trades, and bullet versus barbell positions.

· Term Structure Theory: Spot rates, forward rates, par yields, modeling interest rates and pricing bonds.

· Structural models of default: Modeling credit risk, credit spreads and their behavior, Distance to default, forecasting rating changes, high-yield and investment-grade debt markets.
· Derivatives: Treasury futures, Interest Rate Swaps, and Single-name credit default swaps.

Text Book
1. The Bond and Money Markets: Strategy, Trading and Analysis – Moorad Choudhury (Indian Edition)
2. Fixed Income Markets and Their Derivatives” by Suresh Sundaresan (Indian edition).

TENTATIVE COURSE OUTLINE
Each Session is approximately 1.5 hours

Session No	Session Details
1 and 2	Introduction to Fixed Income Securities Market Money Market Monetary Policy and Its effect on Bond Market Products, Platforms and Systems Information availability Benchmarks (MIBOR) Regulatory Requirements (Bank Balance Sheet Analysis)
3	Primary Market Issuance Needs and Issuance Policy Auctions including When Issued Market Rollovers
4 and 5	Funding Market Positions through Borrowing Introduction to Repo Market Repo and Short Sale Repo Variants
6	Time Value of Money Compounding Rules Market Conventions International Market Quotations
7 and 8	Fixed Income Valuation Valuation of Bonds Liquidity Premium Estimating Probability of Default of a Risky Bond
9	Understanding Market Anomalies Term Structure of Interest Rate Interpreting Yield Curve. Option embedded Bonds
10	Basics of Term Structure Modeling YTM Curve versus Spot Curve Zero Coupon Yield Curve through Models Bootstrapping to derive the Spot Curve
11	Benchmark Yield Curves used in the Market Forward Curve Term Structure Models Binomial Lattice
12	Fixed Income Market Risk Analysis Bond Sensitivity of Interest rate Duration estimation and its implication for portfolio Management
13	Convexity estimation Convexity Gain Butterfly Duration and Convexity of an Embedded Option Bond Impact of Negative Convexity Bond sensitivity PV01 and its impact on portfolio strategy
14	Approaches to Trading and Hedging Trading & Hedging
15 and 16	Fixed Income Derivatives Futures STIR Futures Long Bond Futures Contract Specification Conversion Factors Cheapest to Deliver Concept Hedging with Bond Futures
17	Swaps and Option Basics Interest Rate Swaps Forward Rate Agreements
18	Other OTC Derivatives Credit Derivatives Understanding CDS spread Pricing a CDS using Black-Scholes-Morten Model Securitisation Process SPV and PTC Asset Backed Securities Mortgage backed Securities
19	VaR Basics and its use in Fixed Income Securities Market VaR Concept Variance Covariance Method
20	Historical Simulation Back Testing and Validation

Prerequisites and pre-assignment:

The only prerequisite for the course is good understanding of Financial Management that students have gone through in 1st Year. There is no formal pre-assignment, but I assume basic understanding of Time Value of Money and Valuation as well as of Probability, Matrices, Calculus and Regression. MS-Excel is the most important tool we will use in the class to internalize the concepts. Have some good practice of the MS-Excel. If you have done your Summer Internship in any Investment Bank or leading Brokerage houses, it will be an added advantage.

Grading

Grading will be fair and objective and as per the Institution Rules. Quiz results and Assignment results will be generally available in 24 hours but it can take more time if external expert’s view is sought on valuation assignments. The following components will be taken for Grading:

1. Quiz – 30% (there may be more than one quiz and average would be used).
2. Assignments (30%)
3. End Term (40%)

Class Assignment: (1) The Assignment will be a live Auction Participation (15%); (2) Take away assignments where students (Group) (15%).

Student Contact

Two students (preferably a male and a female) will volunteer to interact with the Instructor for all correspondence and courseware uploads to course-web, if any.

Student Counseling

The instructor will be available in the campus on the class days for counseling, tutorials as well as career planning advice in financial markets. Students are free to discuss the issues they feel fit to discuss with the instructor.

Contact Details
Course Instructor will be available at golak.nath@gmail.com.

Telephone
+91 9820511897

Assignments – First Set (15%)
Group (Max 8 Members) Assignments:
1. Prepare a Report on Various Interest Rates which are available in the fixed income market in India and the purpose of such interest Rates.
2. Prepare a Report on LIBOR Manipulation and its impact on Policy design of both Emerging and Developed Markets.
3. Prepare a Report of Fiscal Deficits of Government of India for last 5 years and its impact on Auction borrowing cost of the Government.
4. Prepare a Report on Debt Funds (you can create a group index) performance for last 5 years and compare the same with the interest rate structures in India.
5. Prepare a Report on Liquidity adjustments undertaken by RBI in last 5 years to ensure liquidity is available to Banks at reasonable rate giving specific weight to LTRO.
6. Prepare a Report of efficiency of Currency Futures market using last 5 years of data from the underlying as well as Currency Exchange in India.

Assignments – Second Set (15%)
Live Government Bond Auction

Created By: Alora Kar on 08/12/2020 at 05:20 PM
Category: BM 19-21 T-V Doctype: Document

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