Introduction
Please note that this is a preliminary course description. The final version will be published in June 2027.
This course explores the valuation and use of fixed income securities—such as sovereign and corporate bonds—and their associated derivatives. Fixed income securities are financial instruments with predetermined cash flow rules established at issuance. A classic example is a Treasury bond that pays fixed coupon payments. Provided the government avoids default, these payments are certain, and the primary remaining source of uncertainty is the path of future interest rates.
The fixed income market is the largest financial market globally and encompasses a wide range of debt instruments, including zero-coupon bonds, floating rate notes, callable and puttable bonds, among others. However, the potential for issuer default introduces credit risk, which distinguishes investment-grade bonds from high-yield (or speculative-grade) bonds. Additionally, liquidity risk—the risk that a security cannot be easily bought or sold without affecting its price—is another factor investors must consider.
Derivatives expand the scope of fixed income markets by allowing market participants to trade interest rate and credit risk directly. Instruments such as interest rate swaps and credit default swaps are powerful tools for risk management, arbitrage, and speculation, allowing investors and institutions to implement more sophisticated and targeted financial strategies.
A strong understanding of fixed income securities, their derivatives, and the structure of these markets is essential for finance professionals and useful for individual investors. Given the scale and complexity of fixed income markets, it also offers many career opportunities in the financial industry.