AFC2340

Debt markets and fixed income securities

(BUS)

6 points + Two 1-hour lectures and one 1-hour tutorial per week (or three 1-hour classes per week if student numbers permit) + Second semester + Clayton + Prerequisites: ETC1000 plus either (i) AFC1100 or (ii) AFC2100 or (iii) AFC2140

Synopsis: An introduction to mathematics of finance and its applications to valuation of transactions in debt markets, in particular the Australian short-term money market and capital market. Traditional methods of interest rate risk management such as immunisation and absolute matching, as well as modern hedging methods which include emulation of portfolio price sensitivity are treated. The notion of modelling short-term yield by ordinary Brownian motion is investigated, and applications to derivative pricing in complete and incomplete markets is discussed.

Assessment: Optional assignment (20%) and examination (80%) + Or examination: 100%