NYU Stern School of Business

Undergraduate College


Spring 2011

Instructor Details

Smith, Josephine


Wednesdays from 2:00pm to 4:00pm

KMC 9-86


Ji Xu





Course Meetings

TR, 2:00pm to 3:15pm

KMC 4-90

Final Exam: Tuesday, May 17, 2011 from 2:00pm to 3:50pm


Course Description and Learning Goals

This course describes important fixed income securities and markets and develops tools for valuing fixed income securities and managing interest rate risk.  The course covers traditional bonds and term structure concepts, as well as fixed income derivatives and financial engineering.


Course Pre-Requisites

Foundations of Financial Markets, C15.0002


Required Course Materials

Required Resources

Lecture notes and problem sets

Recommended Textbooks

P. Veronesi, Fixed Income Securities: Valuation, Risk, and Risk Management, Wiley, 2010.
B. Tuckman, Fixed Income Securities, Wiley, 2002, 2nd ed.

Some info on the recommended textbooks: Both textbooks follow the outline of the course quite well.  The Veronesi text was written recently, hence it has some more up-to-date material on the development of fixed income markets, particularly related to the financial crisis.  The Tuckman text is a great reference, but is more dated yet analytical in nature.


You need a calculator for this class. It is a distinct advantage to have a financial calculator, but not an absolute requirement.  Hopefully, you have already purchased one for your other finance courses, and you will get good use out of a financial calculator. Standard financial calculators include the HP 12C, the HP 10B-II and the TI BA-II Plus. You are expected to learn how to operate the calculator on your own.

Computer Software

Every student of Stern is expected to be comfortable with Excel tools. In particular, any Finance Area major is expected to have knowledge of these tools that extends beyond familiarity to an individual awareness of the uses and limitations of this technology.


Course Outline

Tentative Outline of Lectures

The schedule below is meant to be a guideline of the topics covered in this course.  Changes may occur with notice from the professor.

Date of Lecture Topics Covered
Tuesday, January 25 Course overview, coupon bonds, zero-coupon bonds
Thursday, January 27 Rate of return, zero rates
Tuesday, February 1 Yield to maturity
Thursday, February 3 Duration
Tuesday, February 8 Immunization
Thursday, February 10 Convexity
Tuesday, February 15 Forward contracts
Thursday, February 17 Forward rates
Tuesday, February 22 Floating rate notes
Thursday, February 24 Swaps
Tuesday, March 1 Swap spreads, forward rate agreements
Thursday, March 3 Repurchase agreements
Tuesday, March 8 MIDTERM
Thursday, March 10 No-arbitrage pricing
Tuesday, March 22 Risk-neutral probabilities
Thursday, March 24 Dynamic trading strategies
Tuesday, March 29 Financial engineering
Thursday, March 31 Hedging, options
Tuesday, April 5 Caps
Thursday, April 7 Floors, collars
Tuesday, April 12 Treasury bond futures
Thursday, April 14 Eurodollar futures
Tuesday, April 19 American options
Thursday, April 21 Callable bonds
Tuesday, April 26 Swaptions
Thursday, April 28 Mortgage market
Tuesday, May 3 Passthroughs
Thursday, May 5 CDOs, CMOs
Tuesday, May 17 FINAL EXAM (from 2:00pm to 3:50pm)



























Assessment Components

Final Exam (50%)

Midterm (40%)

Problem Sets (5%)

Class Participation (5%)



Closed note, closed book.  Please bring a calculator.

You must take each of your exams as scheduled, or your grade for the exam will be zero.  There are two exceptions to this rule:

1. In case of a legitimate, foreseeable conflict, you must make a request in writing or by email at least one week prior to the scheduled exam date to take the exam at a different time, and this request must be approved by me in writing or by email prior to the scheduled exam date.

2. In case of an emergency, you must provide formal, written verification, such as a letter from a doctor.


Problem Sets

Because the material is technical and new concepts build on old ones, it will be essential to do the weekly problem sets in order to follow the lectures and succeed on the exams.  The majority of these problem sets will be done in Excel through Blackboard.  To facilitate learning, I encourage students to work together on these problem sets.  Groups of students working together should submit just one assignment.  All students in the same group will get the same grade.  Late assignments will not be accepted.



The study of fixed income securities is quantitative by nature, and this course will be taught very rigorously.  The course will require a consistent commitment of time, energy, and concentration, both inside and outside class, throughout the semester.



At NYU Stern we seek to teach challenging courses that allow students to demonstrate their mastery of the subject matter.  In general, students in undergraduate core courses can expect a grading distribution where: 

Note that while the School uses these ranges  as a guide, the actual distribution for this course and your own grade will depend upon how well  you actually perform in this course.



The process of assigning grades is intended to be one of unbiased evaluation. Students are encouraged to respect the integrity and authority of the professor’s grading system and are discouraged from pursuing arbitrary challenges to it.

If you believe an inadvertent error has been made in the grading of an individual assignment or in assessing an overall course grade, a request to have the grade re-evaluated may be submitted. You must submit such requests in writing to me within two class days of receiving the grade, including a brief written statement of why you believe that an error in grading has been made.

If you do request to have a problem set or exam re-graded, I will re-grade it in its entirety.  Therefore, it is under your best interest to be sure you are willing to accept a lower grade if it is deemed necessary upon another review of the submission.


Academic Integrity

Integrity is critical to the learning process and to all that we do here at NYU Stern. As members of our community, all students agree to abide by the NYU Stern Student Code of Conduct, which includes a commitment to:

The entire Stern Student Code of Conduct applies to all students enrolled in Stern courses and can be found here:

Undergraduate College: http://www.stern.nyu.edu/uc/codeofconduct
Graduate Programs: http://w4.stern.nyu.edu/studentactivities/involved.cfm?doc_id=102505

To help ensure the integrity of our learning community, prose assignments you submit to Blackboard will be submitted to Turnitin.  Turnitin will compare your submission to a database of prior submissions to Turnitin, current and archived Web pages, periodicals, journals, and publications.  Additionally, your document will become part of the Turnitin database.


Professional Responsibilities For This Course




In-class contribution is a significant part of your grade and an important part of our shared learning experience. Your active participation helps me to evaluate your overall performance.
You can excel in this area if you come to class on time and contribute to the course by:




Classroom Norms


Stern Policies

General Behavior
The School expects that students will conduct themselves with respect and professionalism toward faculty, students, and others present in class and will follow the rules laid down by the instructor for classroom behavior.  Students who fail to do so may be asked to leave the classroom. 


Collaboration on Graded Assignments
Students may not work together on graded assignment unless the instructor gives express permission. 


Course Evaluations
Course evaluations are important to us and to students who come after you.  Please complete them thoughtfully.


Recording of Classes

Your class may be recorded for educational purposes


Students with Disabilities

If you have a qualified disability and will require academic accommodation of any kind during this course, you must notify me at the beginning of the course and provide a letter from the Moses Center for Students with Disabilities (CSD, 998-4980, www.nyu.edu/csd) verifying your registration and outlining the accommodations they recommend.  If you will need to take an exam at the CSD, you must submit a completed Exam Accommodations Form to them at least one week prior to the scheduled exam time to be guaranteed accommodation.


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