FINANCIAL MARKET COURSES
Japanese Equity Market
Receivable Finance (New)
Lending - An Introduction
The Lending Cycle
Commodities - An Introduction (Revised)
Commodities - Trading (New)
Commodities - Livestock (New)
Commodities - Softs (New)
Primer – MiFID II/MiFIR (New)
Understanding Private Wealth Management Business
Private Wealth Management Products & Services
Primer – Smart Beta (New)
Available on iPad and Android tablets as well as desktop
Duration & Convexity
For market participants that buy a bond, collect the coupon payments and hold the bond to maturity, market volatility is not a major concern (ignoring the possible reinvestment risk for their coupon payments); interest is received according to a predetermined rate and schedule, and the principal is returned at maturity. However, non-‘buy-and-hold’ investors that buy and sell bonds prior to maturity are exposed to many risks, most significantly interest rate volatility (bond prices and yields/interest rates are inversely related). Duration and convexity – the subject of this course – are important concepts used in measuring the price volatility of a bond, or its price sensitivity with respect to a change in its yield. Being aware of these concepts helps investors to protect themselves from bond price risk.
On completion of this course, you will be able to:
• Use the Taylor approximation formula to estimate the change in the price of a bond for a small change in yield
• Measure the price volatility of a bond using the concept of duration and modified duration
• Employ the properties of duration to construct a portfolio of bonds to immunize future obligations against interest rate risk
• Calculate the degree of non-linearity of the price-yield curve by means of the convexity equation
Topic 1: Taylor Approximation Formula
• Basics of Bonds
• Taylor Approximation Formula
Topic 2: Duration
• What is Duration?
• Why is (Modified) Duration Important?
• Macaulay Duration
• Calculating Duration in Excel
• Modified Duration – Interest Rate Elasticity of a Bond
• Modified Duration in Excel
• Predicting the Price Change Using (Modified) Duration
Topic 3: Convexity
• What is Convexity?
• Convexity vs. Duration
Topic 4: Risk Immunization
• What is Immunization?
• Immunization Using a Portfolio of Bonds
• The Impact on Duration of Changes in Determinants
• The Impact on Duration of Changes in Coupon
• The Impact on Duration of Change in Maturity & Yield
Bond Prices & Yields - View Now
ESTIMATED COMPLETED TIME
Fixed Income - Credit Risk
This course extends the analysis of risks facing fixed income investors beyond merely interest rate risk, and into the sphere of credit risk. It describes the credit characteristics of differing forms of debt issuance, market evaluation of credit risk, and the roles of rating agencies in the credit universe.
Other Courses In:
Bond Prices & Yields
Fixed Income - Credit Risk
Eurobonds - An Introduction
Eurobonds - Issuing & Investing
Floating Rate Notes (FRNs)
US Bond Market
UK Bond Market
European Bond Markets
Japanese Bond Market
Canadian Bond Market
Bond Strategies - Fundamentals
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