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DRPS : Course Catalogue : Business School : Business Studies

Undergraduate Course: Fixed Income Analysis (BUST10156)

Course Outline
SchoolBusiness School CollegeCollege of Arts, Humanities and Social Sciences
Credit level (Normal year taken)SCQF Level 10 (Year 4 Undergraduate) AvailabilityAvailable to all students
SCQF Credits20 ECTS Credits10
SummaryThis course aims to provide coverage of the products, analytical techniques for valuing bonds and quantifying their exposure to changes in interest rates and portfolio strategies to achieve business/client objectives. The focus will be on Residential mortgage-backed securities, asset-backed securities and credit derivatives.
Course description Globally, the fixed-income market is a key source of financing for businesses and governments. In fact, the total market value outstanding of corporate and government bonds is significantly larger than that of equity securities. Similarly, the fixed-income market, which is also called the debt market or bond market, represents a significant investing opportunity for institutions as well as individuals. Pension funds, mutual funds, insurance companies, and sovereign wealth funds, among others, are major fixed-income investors. Retirees who desire a relatively stable income stream often hold fixed-income securities. Clearly, understanding how to value fixed-income securities is important to investors, issuers, and financial analysts.

This course aims to provide coverage of the products, analytical techniques for valuing bonds and quantifying their exposure to changes in interest rates and portfolio strategies to achieve business/client objectives. The focus will be on Residential mortgage-backed securities, asset-backed securities and credit derivatives.

Outline Content

The sessions will contain reference to recent events, e.g., global financial crisis, Brexit and COVID. These events will be used to illustrate the behavioural aspects of debt securities.

Topic 1: Main features of fixed income securities

Topic 2: Bond price volatility, duration and convexity

Topic 3: Bond portfolio immunization

Topic 4: Mortgage backed securities

Topic 5: Bond portfolio construction and management strategies

Topic 6: Term structure models and trees

Topic 7: Arbitrage free models

Topic 8: Fixed income derivatives

Student Learning Experience

This module is only available to students with some finance background i.e. pre-requisite finance courses because of its technical and conceptual content. The course is taught using a variety of methods to enhance engagement and learning. Interactions allow for discussion of key concepts. Students are given exercises from previous sessions for discussion in tutorial groups. The module leader will also provide feedback via electronic and other means.

The sessions provide students with the necessary material to understand fixed income investment strategies. Sessions will be made up of discussions, exercises and mini-cases, designed to help students apply concepts and theories to various situations and rely on empirical evidence and observation to make sense of trading/investment situations under consideration.

Weekly classes will supplement the lectures, which will support student learning by providing opportunities for students to attempt, and gain feedback on, numerical and problem-solving exercises. Students will also have the opportunity for both directed and non-directed independent reading.
Entry Requirements (not applicable to Visiting Students)
Pre-requisites Students MUST have passed: Principles of Finance (BUST08003) OR Introduction to Corporate Finance (BUST08030)
Prohibited Combinations Other requirements None
Information for Visiting Students
Pre-requisitesFor 2023/24 no Visiting Students will be permitted to take the course.
High Demand Course? Yes
Course Delivery Information
Academic year 2024/25, Available to all students (SV1) Quota:  None
Course Start Semester 2
Timetable Timetable
Learning and Teaching activities (Further Info) Total Hours: 200 ( Lecture Hours 20, Seminar/Tutorial Hours 8, Programme Level Learning and Teaching Hours 4, Directed Learning and Independent Learning Hours 168 )
Assessment (Further Info) Written Exam 70 %, Coursework 0 %, Practical Exam 30 %
Additional Information (Assessment) 70% Written exam (In-person Individual) - 2 hours duration - Assesses all course Learning Outcomes
30% Presentation (In-person Group) - 15 minutes duration- Assesses course Learning Outcomes 1, 2
Feedback Formative: Feedback will be provided throughout the course.

Summative: Feedback will be provided on assessments within agreed deadlines.
Exam Information
Exam Diet Paper Name Hours & Minutes
Main Exam Diet S2 (April/May)Fixed Income Analysis (BUST10156)2:00
Learning Outcomes
On completion of this course, the student will be able to:
  1. To Introduce the salient features of fixed-income securities, understanding how these features vary among different types of securities.
  2. Refine simple models to value and hedge with more sophisticated instruments for managing interest-rate risk and credit risk.
  3. Understand how to measure a portfolio's sensitivity to a non-parallel shift in interest rates.
  4. Apply the advanced techniques used for managing risks associated with fixed income securities such as mortgage backed securities.
Reading List
Fabozzi, F. (2021) Bond Markets, Analysis and Strategies, 10th Edition. London: Prentice Hall.

Jarrow, R.A., 2019. Modeling fixed income securities and interest rate options. Chapman and Hall/CRC.

Bessembinder, H., Spatt, C. and Venkataraman, K., 2020. A survey of the microstructure of fixed-income markets. Journal of Financial and Quantitative Analysis, 55(1), pp.1-45.

Hughston, L.P. and Macrina, A., 2012. Pricing fixed-income securities in an information-based framework. Applied Mathematical Finance, 19(4), pp.361-379.

Oakes, D., 2022. Essential Concepts in Fixed Income Investing I: Function and Analysis. In Responsible Investment in Fixed Income Markets (pp. 9-37). Routledge.

Choi, J., Kronlund, M. and Oh, J.Y.J., 2022. Sitting bucks: Stale pricing in fixed income funds. Journal of Financial Economics, 145(2), pp.296-317.
Additional Information
Graduate Attributes and Skills Practice: Applied Knowledge, Skills and Understanding

After completing this course, students should be able to:

Work with a variety of organisations, their stakeholders, and the communities they serve - learning from them, and aiding them to achieve responsible, sustainable and enterprising solutions to complex problems.

Communication, ICT, and Numeracy Skills

After completing this course, students should be able to:

Convey meaning and message through a wide range of communication tools, including digital technology and social media; to understand how to use these tools to communicate in ways that sustain positive and responsible relationships.

Knowledge and Understanding

After completing this course, students should be able to:

Demonstrate a thorough knowledge and understanding of contemporary organisational disciplines; comprehend the role of business within the contemporary world; and critically evaluate and synthesise primary
and secondary research and sources of evidence in order to make, and present, well informed and transparent organisation-related decisions, which have a positive global impact.

Identify, define and analyse theoretical and applied business and management problems, and develop approaches, informed by an understanding of appropriate quantitative and/or qualitative techniques, to explore and solve them responsibly.
KeywordsFixed income,Mortgage back securities,Asset Backed securities,Bonds embedded options
Course organiserDr Kalsoom Jaffar
Course secretaryMiss Emma Allison
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