UNIVERSITY OF CALIFORNIA

IRVINE, CALIFORNIA 92697-3125

Asset managers such as PIMCO have enjoyed great success investing in the fixed-income market. At the same time, a good knowledge of fixed income securities is essential for the corporate sector, as companies more than often raise funds in the form of bonds rather than shares. This course is also an excellent preparation for students interested in taking the Chartered Financial Analysts (CFA) examination, which involves many questions on fixed-income markets.

This course will cover the pricing and risk management of fixed-income products, as well as introduction to fixed-income derivatives. It will discuss interest rate management, product fundamentals, and portfolio strategies.

The course involves a mix of lectures and exercises. We will make extensive use of the Bloomberg system, which is the premier analytical system for managing bond portfolios. The workload for this course will be heavy, reflecting the quantitative nature of this market. The primary focus of the course, however, is on practical applications.

*Bond Markets, Analysis and Strategies, * by Frank Fabozzi, 2003,
FIFTH edition,

Prentice-Hall: Englewood Cliffs, New Jersey,

with in addition Powerpoint notes and other materials.

__Session 1__

Interest Rate Management

*Readings: Fabozzi, Ch 4*

Solutions-Chapter4

__Session 2__

The Term Structure of Interest Rate

*Readings: Fabozzi, Ch 5*

Solutions-Chapter5

__Session 3__

The Term Structure of Interest Rate (continued)

The Bloomberg System__Session 4__

The Bloomberg System #1

Assignment due: Bloomberg System #1__Session 5__

Treasuries, Corporates and Non-U.S. Bonds

*Readings: Fabozzi, Ch 6, 7, 9*

Solutions-Chapter6

Solutions-Chapter7

Solutions-Chapter9

__Session 6__

Derivatives: Forwards, Futures, Swaps, Options

*Readings: Fabozzi, Ch 23, 24, 25 (4th ed: 21, 23, 22)*

Solutions-Chapter23

Solutions-Chapter24

Solutions-Chapter25

__Session 7__

Derivatives: Credit Derivatives

The Bloomberg System #2

Assignment due: Bloomberg System #2__Session 8__

Mortgage-Backed Securities, Collateralized Mortgage Obligations

*Readings: Fabozzi, Ch 10, 11*

Solutions-Chapter10

Solutions-Chapter11

Solutions-Chapter12

Assignment due: CORPORATE BOND STRATEGIES__Session 9__

Portfolio Management Strategies

The Bloomberg System #3

*Readings: Fabozzi, Ch 19, 20, 21 (4th ed: 17, 18, 20)*

Solutions-Chapter19

Solutions-Chapter20

Solutions-Chapter22

Assignment due: Bloomberg System #3__Session 10__

Analysis of Bonds with Options

*Readings: Fabozzi, Ch 14, 15*

Solutions-Chapter2

Solutions-Chapter3

The prerequisite for this course is the investment class (209B). Elementary concepts such as time value of money, yield, discounting, pricing of bonds are assumed known. It would be preferable to take the derivatives class concurrently, although this is not necessary.

**Requirements **

The course will involve about 5-7 assignments, which will all be graded. All assignments should be done
individually and handed in at the beginning of class. Assignment not turned in on time will result in a
grade of zero, unless prior arrangements are made with the instructor. Some of these assignments
involve the Bloomberg system, using one of the two terminals in the computer lab. Others will involve
spreadsheet-based exercises.

**Course Grades**

The course grade will be based on assignments and the final, with an equal weight on each category.
Active class participation is also important.

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