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Fixed Income Module Lessons |
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The
following is a summary of the FTS fixed income modules. We start with
yield curves and the Treasury Calculator first.
The Treasury yield curve represents the opportunity cost associated
with investing in every financial market. The modules are
designed to let students become acquainted with both yield curve
estimation, smoothing and risk management. For example, in the
Treasury Calculator students can become acquainted with the current
yield curve, spot and forward curves as well as some common estimation
techniques. Yield Curve and Interest Rate Risk let students
study the dynamic behavior of the real world curves (spot or forward
curves) and some of the popular methods for managing this risk (e.g.,
duration/convexity or a factor approach). Finally, the Black Derman Toy Module is a heavy duty real world module that introduces
students to pricing any interest rate derivative by applying this
useful one factor approach to valuation. |
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The Treasury Calculator Module is designed to let you analyze current
yield curves, forward curves, yield curve smoothing, compute position
values and risk management measures. You can automatically retrieve
current data from the web to perform this analysis or
provide your own data you have stored in a spreadsheet.
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The Historical Interest
Rate Risk Analysis Module is designed to let you easily process the
large amount of historical interest rate data that is continually
updated on the Web. Retrieval is automated so that you can perform
statistical and graphical analysis of this data at any time from the
convenience of your own PC.
The main power of the
module, however, is it's ability to let you immediately perform both
graphical and statistical analysis of the last decade's US Treasury
data. For example, you can perform factor analysis to observe
how well the first three factors fit observed data. These
factors are important because they are commonly described as the
Level, Slope and Curvature factors. You can integrate these
insights into the Treasury Calculator, described above, by examining
this type of information can be exploited into the Nelson Siegel
approach for smoothing the yield curve. In addition, the
historical interest rate module lets you test and apply back-testing
of the common fixed income management strategies such as
Duration/Convexity or using Factor Approach. You can apply this
to the data that is automatically retrieved from the web or your own
data. The choice is yours.
As a result, irrespective of whether you are interested in the
Investments side of finance or the Corporate side of finance the fixed
income modules provide a powerful training tool for understanding how
these important markets work.
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This module generates interest rate trees that are
instantaneously consistent with observed spot rates and volatility
structure. This lets you value any interest rate derivative or
sequence of cash flows, that can be represented on the tree. You
can apply the module to your own inputs (i.e., yield curve and
volatility structure) and use the output in conjunction with Excel.
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In addition to the modules additional advanced interactive lessons are
provided for learning some of the finer points associated with the
subject matter of these modules. Two of these lessons are:
Principal
Component Analysis
Bond
Immunization Theory
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