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## Fixed Income Derivatives

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**Fixed Income Derivatives**MGT 4850 Spring 2008 University of Lethbridge**Outline of the class**• Duration summary • Meaning of duration other math insights**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**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**Babcock’s Formula**• Weighted average of “current yield” and PVIF**Duration Patterns**• Maturity**Duration Patterns**• Coupon**Interest Rate Term Structure**• http://www.smartmoney.com/onebond/index.cfm?story=yieldcurve