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Derivatives & Fixed Income Study Guide

The document provides study notes on derivatives and fixed income securities, covering key terms, interest rate fundamentals, valuation techniques, risk analysis, interest rate dynamics, and bonds with embedded features. It includes definitions of forward contracts, credit risk, options, and various pricing models. Additionally, it discusses concepts such as yield curves, credit default swaps, and bond valuation methods.

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agnieszkaaanowak2002
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40 views6 pages

Derivatives & Fixed Income Study Guide

The document provides study notes on derivatives and fixed income securities, covering key terms, interest rate fundamentals, valuation techniques, risk analysis, interest rate dynamics, and bonds with embedded features. It includes definitions of forward contracts, credit risk, options, and various pricing models. Additionally, it discusses concepts such as yield curves, credit default swaps, and bond valuation methods.

Uploaded by

agnieszkaaanowak2002
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Study Notes: Derivatives and Fixed Income Securities

1. Key Terms, Definitions, Concepts

- Forward contracts (long, short positions) — Forward commitments

- Credit risk, recovery rate — Credit analysis

- Options (call, put, moneyness) — Pricing of options

- CDS (credit default swaps, reference entity, notional, spread) — Credit default swaps
2. Interest Rate Fundamentals

- Spot rate — Interest rate term structure

- Yield to maturity (YTM) — Interest rate term structure

- Types and shapes of the yield curve — Interest rate term structure

- Forward rate & forward pricing model — Interest rate term structure
3. Valuation & Pricing Techniques

- Forward pricing and arbitrage — Forward commitments

- Carry arbitrage model — Forward commitments

- Option pricing: binomial and Black-Scholes — Pricing of options

- Bond pricing using YTM, spreads — Valuation of Bonds

- Z-spread and OAS — Valuation of Bonds

- CDS valuation (protection vs premium leg) — Credit default swaps


4. Risk and Credit Analysis

- Probability of default (actual & risk-neutral) — Credit analysis

- Expected exposure & CVA — Credit analysis

- Credit ratings, notching, credit migration — Credit analysis

- CDS spread & coupon impact — Credit default swaps

- Hazard rate and survival probability — Credit default swaps


5. Interest Rate Dynamics & Modelling

- Bootstrapping the spot curve — Interest rate term structure

- Riding the yield curve — Interest rate term structure

- Theories of term structure (Expectations, Liquidity Preference, Segmented Markets) — Interest rate
term structure

- Modern interest rate models (e.g., CIR) — Interest rate term structure
6. Bonds with Embedded Features

- Duration (Macaulay, modified, effective) — Valuation of Bonds

- Convexity & its correction — Valuation of Bonds

- Callable & putable bond valuation — Valuation of Bonds

- Interest rate tree (binomial model) — Valuation of Bonds

- Monte Carlo simulation & drift-adjusted models — Valuation of Bonds

- Capped and floored floaters — Valuation of Bonds

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