1. Fixed Income Derivatives Immunization Strategies MGT 4850 Spring 2009 University of Lethbridge

2. Duration Calculations

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

4. 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

5. Convexity

6. Meaning of Duration Weighted average of the bond’s payments maturities Bond’s price elasticity with respect to its discount rate Discount factor elasticity Price volatility

7. Bond Price elasticity in Excel

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

9. Duration Patterns Maturity

10. Duration Patterns Coupon

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

12. Treasury Futures contracts http://jobs.efinancialcareers.co.uk/job-4000000000246502.htm/keywordAny=fixed%20income%20derivatives/Calls Trading the yield curve NOB spreads Trading spreads TED spreads Discount yield vs. bond equivalent yield

13. Eurodollar Futures and swaps Plain Vanila Swap Foreign Currency swap Circus swap Calibration of models – arbitrage free pricing models

14. Credit Risk Credit derivatives –Credit default options –Credit linked notes –Total return swaps