Advice on New Fixed Income Class

I figured I’d draw on the WC hive mind to get some advice - I’m putting together a new class on Fixed Income for undergrads, and I’m hoping to include a lot of Excel exercises (like many students, ours don’t have very good excel skills, so I’m planning on making them work on them more). I’m looking for good exercises i can give them that will (1) Help drive home some of the intuition behind Fixed Income concepts, and (2) Make the little buggers do more excel. I need suggestions about either good assignments/exercises or good resources. So far, I plan on having them

  1. Interpolate spot rates to estimate a yield curve
  2. Calculate z and option-adjusted spreads
  3. Calculate Duration/convexity based on the actual cash flows of a bond and graph them out
  4. Calculate discount margin on a floater using a Solver
  5. Model the cash flows to a simple two-tranch MBS to see how the two tranches’ cash flows change under different PSA
  6. Price bonds with embedded options in a binomial framework

I also want to include some VBA in the mix.

Any suggestions? I have a great deal of freedom, because while I’ve taught Fixed Income before, this will be at a new school (I’m moving), and it’ll be a new class for them.

5…,amortize collateral using IPMT & PPMT

Doing excel work is definitely very helpful, but I think sprinkling some class time in explaining how the bond market works and maybe walking them through a few credit stories or talking through the relationship with the Fed would help engage them in a career path. It’s also very helpful as you approach interviews because talking about duration and convexity isn’t the most useful thing in an interview. Just my $0.02 though. I always felt like outside of a few academic principals the bond market was this enigmatic hole in my knowledge leaving school.

you should invite BS to speak to kids about YAS

Swan: the class will cover all that - from markets and instruments to the bigger picture of the Fed. I have all those parts included in the class. My typical class starts with discussion of the day’s news, so they’ll get a lot of exposure to the industry and how the economy (and the Fed) factors into it.

What I’m mostly concerned about at this point is what excell bells and whistles (i.e. assignments) to add.


YAS me no questions ITAL you no lies??

its a function on the BBERG

Guess how I know you’ve always been a professor?

Ah - didn’t have Bloomberg at my previous school. Will have it at the new one. Gotta do some homework before class starts.

I make no bones about not having been in industry. I’ve got my blnd spots. That’s why I try to draw on folks that know more than me.

yesI’m just messing around.

Generate a spot curve from a par curve, and a (1-period) forward curve from a spot curve.

You should just subcontract the design of this class to S2000.

I would scratch the graphing of duration/convexity as that seems pretty pointless. I would rather have them calculate price changes based on duration/convexity and be able to discuss 2 similar securities with different duration/convexities etc.

Other than that I would just spend a ton of time on different spreads & yields used.

With Excel, it’s easy enough to plot out a curve, and probably useful. Definitely the duration is useful, and to do it with embedded options might be even more so (convexity is useful there).

For number 5 I would add CPR and WAL calculations

Good ideas. Keep them coming. Ideally, I’d take Yayyywork’s suggestion and hire S2000. But I suspect he’s too pricey for me.

And Swan - not to worry. No offense taken.

Messing with people (and getting messed with) is pretty much second nature among my friends and colleagues. I try not to interact much with those what can’t take it (or give it).

Good call, an understanding of SMM/CPR/PSA would be useful as an overview of how these securities work as well, although I am not sure how granular you want to get with them.

Are these good undergrads? Some of this stuff can be hard to teach if other stuff isn’t already in place.

I spent a very depressing weekend one time when I found myself writing up exercises in how to work with percents. It lowered the bar on what I expected of those students tremendously, but at least the guy selling me bourbon was happy.

Always a concern, bchad. From what I’ve been told, they’re halfway decent. I have to dig a bit deeper - I’m neurotic about making sure I pitch things at the right level,. I’ve had the bad experience of shooting too high, and that serves no one.

I’d skip the VBA. I’d work on getting their excel skills satisfactory first.

Can build an interest rate risk simulation to show how maturity, coupon, etc impact the violatility when rates rise. Learning to build a sensitivity table / analysis would be useful. Premium vs discount bonds and how they react differently.