- Design of the Course
- Basic Definitions and Ground Rules.
- Compounding period and effective annual yield
- Coupon Bonds, yield to maturity, and Bootstrapping the yield curve
- Institutional details in the bond markets
- Quoting convention: Accrued Interest.
- Day-count conventions and bad days.
- Primer on Treasury market Conventions
- Yield to maturity on a coupon bond
- Problem Set on the bond material.
- Institutional details in the bond markets
- Perpetuities and annuities
- Mortgages
- Previous quiz.
- Previous quiz.
- Spreadsheet showing bootstrapping the yield curve; also spot and forward rates.
- In class working through of bootstrapping and arbitrage.
- Study Materials:
- Problem Set II. Due September 7.
- Study Materials:
- Class spreadsheet with the use of repo to finance and short STRIPS.
- Problem set on the use of repo to finance and short STRIPS.
- Overview of US Treasury Auctions
- Treasury Site Containing Auction and buy-back results.
- On-the-run premium
- Repo and securities lending
-
``The Cleared Bilateral Repo Market and Proposed Repo Benchmark Rates,'' by David Bowman, Joshua Louria, Matthew McCormick, and
Mary-Frances Styczynski.
- Reference Guide to U.S. Repo and Securities Lending Markets,'' by Viktoria Baklanova, Adam Copeland, and Rebecca McGaughrin. Federal Reserve Bank of New York Staff Report No. 740, December 2015.
- SIFMA Repo Market Fact Sheet: 2018.
- Latest SIFMA Repo Market Fact Sheet.
- Spreadsheet with demonstration of repo financing and short-selling (securities lending).
- Problem Set.
- Notes demonstrating repo financing of STRIPS (since in-class quizzes will generally feature STRIPS).
- Old Quiz on repos, specials -- #5 is an example question with STRIPS.
- Spreadsheet example of the ``Long Term Capital Trade'' to capture the On-the-Run Premium.
- Problem Set.
- Class Spreadsheet for 2020 Class 3.
- Problem Set 3, due September 19 at 5:00 pm, Tucson time.
-
Link to class zoom recording.
- Problem Set 4, due September 26 at 5:00 pm, Tucson time.
- Part I. Background:
- Part II. Convergence Trade:
- Shell spreadsheet for introductory lecture on forward rates, floating rate notes, and swaps.
- Complete spreadsheet for introductory lecture on forward rates, floating rate notes, and swaps.
- September 28 Class Lecture and following office hours (video).
- Problem Set 5 Due Saturday, October 3, 2020 by 5:00 pm Tucson time.
- October 5 Class Lecture (video).
- Problem Set 6 Due Saturday, October 10, 2020 by 5:00 pm Tucson time.
- In class mini-case shell (bonus class on swap vs Treasury trade).
- Worked out Mini Case (as in class notes).
- October 12 Class Lecture (video). This video has 2 parts--pre- and post-break. There is a ``forward button'' (>|) to the right of the play button. Pushing that will start the second part.
- Outline for our class on duration.
- The mathematics of duration.
- Examples
- Additional Concepts:
- DV01
- Dollar duration
- Convexity (second derivative elasticity of price wrt yield).
- Problem set on duration
- Old quiz on this material.
- Class recording from October 19, 2020.
- In Class Spreadsheet.
- Problem Set 7 Due October 25 before 17:00 Tucson time.
- On the run convergence trade worked out in class on Oct 26, 2022.
- Class recording from October 26, 2020 (video).
- Barbell / butterfly trade from class.
- Floating Rate Notes (Floaters)
- Valuation and duration of Inverse Floaters
- Problem set on inverse floaters.
- Problem Set 2 on inverse floaters.
- Class spreadsheet from November 2, 2020.
- Recording of Class on November 2, 2020 (video).
- Problem Set 8 Due Saturday, November 7, before 17:00 Tucson time.
- Basics:
- CME Group: Understanding Treasury Futures
- CME Group: Algorithm to compute conversion factors.
- My notes on the 10-year Treasury Note futures market.
- Accompanying spreadsheet with the September 2020 contract on July 15, 2020.
- Pimco settles class action lawsuit alleging manipulation related to the June 2005 10-year Treasury note futures contract.
- Court documents with allegations against PIMCO.
- Basis Trades and Treasury Market Liquidity, by Daniel Barth and Jay Kahn. July 16, 2020, Office of Financial Reasearch.
-
Recording of class from November 9, 2020 (video).
- Problem Set 9 Due Saturday, November 14, before 17:00 Tucson time.
- Black's Model for future interest rates, caps and floors:
- The probabilistic framework behind Black's Normal model.
- Black's Normal Model and Bloomberg -- Macros.
- Black's Lognormal Model
- Video recording
of class session on Monday, Novemeber 16, 2020.
- Black Derman, and Toy Model calibrated to caplet (i.e., forward) vols.
- Black, Derman, and Toy Model.--Calibrated to Bond vols.
- A recent interview with Professor Derman: In a combined format.
- Problems and a study guide.
- Options, Caplets, Caps, Floorlets, Floors, & Collars in BDT Spreadsheet.
- Slides with Bloomberg screens on Option Valuation.
- Spreadsheet with BDT solutions and examples of a caps / floors problem.
- Base Case: parallel shifts in flat yield curve
- Monte Carlo
- VBA
- Spreadsheet with relevant VBA Code
- Problem set on dynamic duration hedging of an annuity.
- Problem set on basic VBA coding.
- Discussion of the base model and its shortcomings.
- Problem set for second quiz on this material.
- 1-factor Vasicek model to simulate yield curve paths and evaluate the dynamic hedge.
