Guide
Lessons meant to be read in order. Each one only uses what came before it.
Fixed income
Bond pricing, yield curves, duration and convexity.
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- Bond prices and yieldsA bond as a stream of cash flows, yield to maturity, par, premium and discount.
- Duration and convexityMacaulay and modified duration, first- and second-order approximations of interest-rate risk.
- Immunization and duration matchingProtecting a liability against rate moves by matching present value and duration, and why convexity and rebalancing matter.
- Spot rates, forward rates and the yield curveZero-coupon rates, bootstrapping from par yields, implied forward rates and the shape of the curve.
- Bond futures and the cheapest-to-deliverDeliverable baskets, conversion factors, invoice price, net delivery cost and why the cheapest-to-deliver bond switches with the yield.
- Interest rate swapsFixed and floating legs, the swap as two bonds, the par swap rate from discount factors, valuing an existing swap and DV01.
- Callable bonds and negative convexityThe issuer's call option, price compression near the call price, yield to call and negative convexity.
- Credit risk: default probabilities and credit spreadsHazard rates, survival probabilities, recovery, pricing defaultable bonds and the CDS spread.
Check yourself
Questions from the lessons of this series. Open a lesson's group whenever you want to test yourself.