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Fixed Income Derivatives

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Fixed Income Derivatives

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  1. Fixed Income Derivatives MGT 4850 Spring 2008 University of Lethbridge

  2. Outline of the class • Duration summary • Meaning of duration other math insights

  3. Duration(summary of previous class) • Measure of the sensitivity of the price of a bond to changes in the interest rate at which Cash Flows are discounted • Calculation • Bank Immunization • Bullet Immunization • Convexity

  4. Meaning of Duration • Weighted Average of the bond’s payments • Bond’s price elasticity with respect to its discount rate • Discount factor elasticity • Price volatility

  5. Babcock’s Formula • Weighted average of “current yield” and PVIF

  6. Duration Patterns • Maturity

  7. Duration Patterns • Coupon

  8. Interest Rate Term Structure • http://www.smartmoney.com/onebond/index.cfm?story=yieldcurve