Fixed IncomeSecurities
Tools for Today’s Markets
Third Edition
Instructor’s Manual
Bruce Tuckman
ANGEL SERRAT
John Wiley & Sons, Inc.
CONTENTS
introduction
Part ONe
Exercises
Part two
Answers
part three
Figures and Tables
Introduction
This text is meant for a full-term, MBA-level course in Fixed Income Securities, but individual chapters are very much appropriate for more general courses in finance.
With respect to a full-term course, the amount of material in this text vastly exceeds what can be covered in a single semester. For this reason, the following guidelines will be useful.
The Overview chapter contains an introduction to who borrows and who lends in global fixed income markets. As the material might take at least four class hours, it is appropriate only for faculty who wish to emphasize institutional matters. Faculty who do not want to sacrifice much time from valuation and risk might therefore ask students to read this chapter on their own over the course of the semester.
Chapters 1 through 6 are the basic analytical tools used in fixed income markets, excluding contingent claims pricing, which is discussed presently. These six chapters can easily fill one half of a semester. If that seems too much time, the following material is really essential, both in practice and for appreciating the rest of the book: Chapter 1; Chapter 2; the section in Chapter 3 on yield; and Chapter 4. Topics from the other sections in Chapters 3, 5, and 6, can be chosen by preference.
The second half of the semester can be devoted to a combination of term structure models and individual securities and markets. While many faculty enjoy teaching term structure models, given how much interesting material there is to cover with respect to understanding the valuation and hedging of individual securities, it may not be worthwhile to spend too much of an MBA course on term structure models. In any case, the basic theory of the arbitrage pricing of contingent claims in the context of short-rate models is covered in Chapters 7 and 8. Chapters 9 through 11 treat these models further, almost as an application of their own. Note that while some parts of later chapters cannot be fully understood without understanding the material in Chapters 7 and 8, most of the later chapters are written to be understood without this prerequisite.
Individual securities and markets to be taught are in Part Four. The chapters are designed so that they can be pretty much used independently. Even Chapters 14 and 15, which, to understand completely, require an understanding of Chapter 13, can be managed on their own with some effort on the part of the instructor. Note that the theory underlying the use of Black-Scholes-Merton models in the fixed income context is included in Chapter 18. This theory can be covered in class or not, without getting in the way of understanding the rest of that chapter. Finally, note that Chapter 17, while quite important recently for practitioners, is probably beyond what should be covered in an MBA class. Similarly, Chapter 21 is very applied and should probably be used in the classroom only as part of a related project.