Beijing Foreign Studies University

COURSE SYLLABUS

Contents

Course
Title..........................................................................................................................Fejl!
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Contact
Details.....................................................................................................................Fejl!
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Course
Description..............................................................................................................Fejl!
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Course Aims and Learning Objectives.............................................................................2

Learning Resources............................................................................................................2

Academic Integrity.............................................................................................................3

Miscellaneous issues...........................................................................................................4

Weekly Arrangements.......................................................................................................4

Individual Work.................................................................................................................5

Group Work.......................................................................................................................5

Meetings.............................................................................................................................5

Teaching Approach...........................................................................................................6

Assessment.........................................................................................................................6

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 Beijing Foreign Studies University

COURSE TITLE: Fixed Income Securities

SEMESTER: Spring, 2017 INSTRUCTOR: Dr. Xiaosong DING
LEVEL: Graduate EMAIL: xiaosong.ding@hotmail.com
PRE-REQUISITES: Investment Science OFFICE: No. 977, BFSU International Building
CREDIT HOURS: 2 OFFICE HOURS: By appointment

Class Type Days Time Room

BFSU International
Lecture and Lab Tuesday 13:00-14:50
Building 301

COURSE DESCRIPTION

This course intends to provide you with the basics of fixed-income securities, but not in the
fashion of traditional courses and texts, which emphasize institutional details with theories
included in an ad hoc fashion and only occasionally in this area. In contrast, you will learn
the basics of fixed-income securities from a unified theoretical framework, i.e., that of the
arbitrage-free pricing and complete-markets methodology. The arbitrage-free term structure
models used for pricing interest rate derivatives are explained with particular emphasis on the
Heath-Jarrow-Morton (HJM) model and its applications.

The HJM model is presented using the standard binomial model so often used to analyze the
pricing and hedging of equity options. The standard binomial model is chosen because of its
mathematical simplicity in comparison to the more complex stochastic calculus techniques,
and the little loss of generality from an implementation viewpoint.

The HJM model is already being employed by commercial and investment banks to price and
hedge numerous types of fixed-income securities and interest rate options. One reason for this
extensive usage is that this model provides a Lego-type building-block technology. With
minor modifications, this technology can be easily extended (built on) to handle the pricing
of other more complex instruments such as foreign currency derivatives, commodity
derivatives, and credit derivatives.

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1. Course Aims & Learning Objectives

² Course aims: The goal is to introduce you equilibrium models, no-arbitrage models as
well as analytical tools used in interest rate modeling and risk management.

² Learning objectives: You will get accustomed to those tools such as the binomial model
utilized in the analysis theoretically and practically.

2. Contribution to Mission & Contribution to learning goals

£Holistic Education £Learning by doing £Human-centric values
Contribution to Mission
£Resource integration £Innovative knowledge ▉International view

▉Goal 1: To be familiar with theoretical models used in analysis.

Contribution to learning goals: ▉Goal 2: To be familiar with computer tools used in analysis.
Professional Master’s Degree
in Finance
£Goal 3:

£Goal 4:

Name: Jing FAN Office:

Director of Department
E-mail: fanjing@bfsu.edu.cn Phone:
Name: Haibo DUAN Office:
Department Secretary
E-mail: duanhaibo@bfsu.edu.cn Phone:

3. Learning Resources
· Required Resources
[1]. Modeling Fixed-Income Securities and Interest Rate Options (2nd) by Prof. Robert A. Jarrow

· Recommended Resources
[1]. Derivative Securities by Jarrow and Turnbull
[2]. Fixed Income Markets and Their Derivatives by Sundaresan
[3]. Martingale Methods in Financial Modelling by Musiela and Rutkowski

4. Academic integrity
A student has an obligation to exhibit honesty and to respect the ethical standards of the
academy in carrying out his or her academic assignments. Without limiting the application of
this principle, a student may be found to have violated this obligation if he or she:

1. Refers during an academic evaluation to materials or sources, or employs devices, not

authorized by the instructor.
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2. Provides assistance during an academic evaluation to another person in a manner not

authorized by the instructor.
3. Receives assistance during an academic evaluation from another person in a manner
not authorized by the instructor.
4. Engages in unauthorized possession, buying, selling, obtaining, or using of any
materials intended to be used as an instrument of academic evaluation in advance of
its administration.
5. Acts as a substitute for another person in any academic evaluation process.
6. Utilizes a substitute in any academic evaluation procedure.
7. Practices any form of deceit in an academic evaluation proceeding.
8. Depends on the aid of others in a manner expressly prohibited by the instructor, in the
research, preparation, creation, writing, performing, or publication of work to be
submitted for academic credit or evaluation.
9. Provides aid to another person, knowing such aid is expressly prohibited by the
instructor, in the research, preparation, creation, writing, performing, or publication of
work to be submitted for academic credit or evaluation.
10. Presents as one's own, for academic evaluation, the ideas, representations, or words of
another person or persons without customary and proper acknowledgment of sources.
11. Submits the work of another person in a manner that represents the work to be one's
own.
12. Knowingly permits one's work to be submitted by another person without the
instructor's authorization.
13. Attempts to influence or change one's academic evaluation or record for reasons other
than achievement or merit.
14. Indulges, during a class, examination session, or any other academic setting, in
conduct that is so disruptive or disrespectful as to infringe upon the rights of the
instructor or fellow students.

Fails to cooperate, if called upon, in the investigation or disposition of any allegation of

dishonesty pertaining to another student, or any other breach of a student's obligation to exhibit
honesty.

5. Weekly Arrangements

Assignments or other
Week Date Content/Learning Activities
learning activities
Feb. 28 Traded Securities
1

Mar. 7 The Classical Approach

2

Mar. 14 The Term Structure of Interest Rates

3

4 Mar. 21 The Evolution of the Term Structure of

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Interest Rates

Mar. 28 The Expectations Hypothesis

5

Apr. 11 Trading Strategies, Arbitrage

7 Opportunities, and Complete Markets

Apr. 18 Bond Trading Strategies-An Example

8

Apr. 25 Bond Trading Strategies-Theory

9

May. 2 Interest Rate Derivatives Valuation-

10 Theory

May. 9 Coupon Bonds

11

May. 16 Options on Bonds

12

May. 23 Forwards and Futures

13

Jun. 6 Swaps, Caps, Floors, and Swaptions

15

Jun. 13 Interest Rate Exotics

16

Individual work:
The assignments will depend on the learning process.

Team-work:

6. Meetings

7. Teaching Approach
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▉Lecture £Study Group

£Case Study £Seminar on Field Research
£e-Learning £Internship
£Project Adventure £Service Learning
£Role Playing £Independent Study
£Business Simulation Game £Dialogue Teaching
£Theater Learning £Others

8. Assessment
Table 1. Assessments and percentage
Assessment Task & Details & Due date Weighting
Graded Elements
Performance Attendance and class participation 40%
Quizzes & assignments Assignments after lectures 60%

This class also follows the rules and expectations regarding letter grades provided by BFSU and it also
follows the grading curve policies. See table 2.
Table 2. Number and letter grade correspondence
百分制分数 等级 绩点
90-100 A 4.0
85-89 B+ 3.7
82-84 B 3.3
78-81 B- 3.0
75-77 C+ 2.7
72-74 C 2.3
68-71 C- 2.0
64-67 D+ 1.5
60-63 D 1.0
0-59 F 0
Points Grades Grade points
85≤ A 4.0
78≤x<85 B 3.0
60≤x<78 C 2.0
55≤x<60 D 1.0
<55 F 0