1. Fall-02 http://pluto.mscc.huji.ac.il/~mswiener/zvi.html EMBAF Zvi Wiener 02-588-3049 mswiener@mscc.huji.ac.il Fixed Income Instruments 1

2. Zvi WienerFabozzi Ch 1 slide 2 Sources Fabozzi, “Bond Markets, Analysis and Strategies”, Prentice Hall. P. Wilmott, Derivatives, Wiley. Hull, White, Manuscript.

3. Zvi WienerFabozzi Ch 1 slide 3 Plan Pricing of Bonds Measuring yield Bond Price Volatility Factors Affecting Yields and the Term Structure of IR Treasury and Agency Securities Markets Corporate Debt Instruments Municipals

4. Zvi WienerFabozzi Ch 1 slide 4 Plan Non-US Bonds Mortgage Loans Mortgage Pass-Through Securities CMO and Stripped MBS ABS Bonds with Embedded Options Analysis of MBS Analysis of Convertible Bonds

5. Zvi WienerFabozzi Ch 1 slide 5 Plan Active Bond Portfolio Management Indexing Liability Funding Strategies Bond Performance Measurement Interest Rate Futures Interest Rate Options Interest Rate Swaps, Caps, Floors

6. Zvi WienerFabozzi Ch 1 slide 6 Characteristics of a Bond Issuer Time to maturity Coupon rate, type and frequency Linkage Embedded options Indentures Guarantees or collateral

7. Zvi WienerFabozzi Ch 1 slide 7 Time to Maturity Short-term – one to five years Intermediate-term – five to twelve years Long-term – more than twelve years

8. Zvi WienerFabozzi Ch 1 slide 8 Basic terms Principal Coupon, discount and premium bonds Zero coupon bonds Floating rate bonds Inverse floaters Deferred coupon bonds Amortization schedule Convertible bonds

9. Zvi WienerFabozzi Ch 1 slide 9 Embedded Options Call feature – the issuer can retire the debt Put provision – the bondholders option Convertible bond – the bondholder can exchange the bond Exchangeable bond allows conversion to securities issued by another firm

10. Zvi WienerFabozzi Ch 1 slide 10 Sectors Treasury sector: bills, notes, bonds Agency sector: debentures (no collateral) Municipal sector: tax exempt Corporate sector: US and Yankee issues – bonds, notes, structured notes, CP – investment grade and noninvestment grade Asset-backed securities sector MBS sector

11. Zvi WienerFabozzi Ch 1 slide 11 Basic Terms The Money Market Account LIBOR = London Interbank Offer Rate, see BBA Internet site FRA = Forward Rate Agreement Repos, reverse repos Strips = Separate Trading of Registered Interest and Principal of Securities

12. Zvi WienerFabozzi Ch 1 slide 12 Basic Terms gilts (bonds issued by the UK government) JGB = Japanese Government Bonds Yen denominated issued by non-Japanese institutions are called Samurai bonds

13. Zvi WienerFabozzi Ch 1 slide 13 Major risks Interest rate risk Default risk Reinvestment risk Call risk Currency risk Liquidity risk Risk risk

14. Zvi WienerFabozzi Ch 1 slide 14 Straight bond Floater

15. Zvi WienerFabozzi Ch 1 slide 15 Questions 1, 2, 3, 4, 5, 8, 10, 11, 12, 13, 14 Home Assignment Chapter 1