Duration:3 days
 Bond Analytics
 Zero Coupon Analysis
 Pricing FRN’s and Capital Market Floaters
 Pricing InflationLinked Bonds
 Principal Components Analysis
 Analysis of Callable Bonds
 Pricing HighYield Bonds
 Advanced Portfolio Strategies
The objective of this seminar is to give the participants a good understanding of and “handson”
experience with advanced, stateoftheart toolkits for analyzing bonds and sophisticated bond
investment strategies. We shall start with a brief review of “traditional” bond analytics and explain
how the expected return of a bond portfolio can be modeled as a Taylorseries of second and higher
orders. We shall then explain in depth how zero coupon curves can be derived from observable market
prices and how such curves can be used to price different bond structures, including Floating Rate
Notes. We also look at how inflationlinked bonds are priced, and how implied inflation expectations
can be backed out of observable prices. Next, we will show how you can use Principal Components
Analysis on historical yield curve data to identify statistically significant and independent return
factors. We will also explain how you can use these factors and their associated “factor loadings” for
trading and risk management purposes. We will then look at how callable bonds and bonds with
prepayment options (e.g. Mortgage Backed Securities) can be valued using term structure models,
prepayment models and Monte Carlo Simulation. We will also show how to calculate optionadjusted
keyratios such as OptionAdjusted Yield, OptionAdjusted Spread, OptionAdjusted Duration, Static
Spreads etc. Next, we will discuss how “High Yield” bonds (i.e. lowrated corporate and emerging
markets bonds) can be analyzed with explicit consideration of default probabilities, recovery rates,
covenants, and collaterals. Finally, we will present and explain some advanced strategies for managing
bond portfolios, based upon the above analytics.
Day One
09.00  09.15 Welcome and Introduction
09.15  12.00 Review of Bond Analytics
 Price and Yield Analysis
 Risk Analysis
 Portfolio Analysis
Zero Coupon Analysis
 Spot Rates vs. Coupon Yields
 The Par Curve
 Constructing the SpotRate Curve

Bootstrapping
 Cubic Spline Smoothing
 Forward Rates
 Using the Yield Curve to Price Bonds
 Exercises
12.00  13.00 Lunch
13.00  16.30 Pricing Floaters
 General Features of Floaters
 Discounted Margin Model
 Valuing Floaters using Forward Rates
 Price Sensitivity of Floaters
 Valuing Inverse Floaters and CMS Floaters
 Small Exercises
Pricing InflationLinked Bonds

Types of InflationLinked Structures
 TIPS
 Bonds with deflation protection
 Estimating the CashFlow
 Real and Nominal Yield
 Backing out Inflation Expectations
 InflationAdjusted Risk
 Exercises
Day Two
09.00  12.00 Principal Component Analysis
 Common Factors Affecting Bond Returns
 Overview of MultiFactor Interest Rate Risk Models

The Factor Model
 Eigenvalues, Eigenvectors and the Yield Curve
 Calculating and Interpreting Factor Loadings
 Using the Factor Model to Calculate VaR for a Bond Portfolio
 Factor Immunization for Hedging Yield Curve Fluctuations
 Monte Carlo Simulation Using PCA
 Exercises
12.00  13.00 Lunch
13.00  16.30 Analysis of Callable Bonds
 Price Yield Relationship of Callable Bonds

Priceyield diagram
 Why duration can be negative
 Why convexity can be negative
 A Generalised Model for Valuing Bonds with Embedded Options
 PrePayment Models
 Binomial Interest Rate Trees

OptionAdjusted Analysis
 Option Adjusted Yield and Duration
 Option Adjusted Spread
 Effective Duration
 Using Monte Carlo Simulation to Analyze Callable/Prepayable Bonds
 Exercises
Day Three
09.00  12.00 Analysis of HighYield Bonds
 The High Yield Market

High Yield Security Valuation
 Factors Affecting the Spread
 Modelling the Yield of NonInvestment Grade Bonds

High Yield Security Risk Analysis
 Historical Default and Recovery Rates
 Rating Migration and Credit Quality Correlation
 Modelling Bond Rating Changes for Credit Risk Estimation
 Case Study: Using CreditGrades™ to Value Corporate Bond
 Exercises
12.00  13.00 Lunch
13.00  16.00 Advanced Bond Trading and Investment Strategies

Portfolio Optimisation
 SinglePeriod Immunisation
 MultiPeriod Immunisation
 Yield Curve Plays

International Bond Investing
 CurrencyHedged Bond Investments
 Constructing Global Bond Portfolios
 High Yield Portfolio Management
 Marketneutral Strategies
 Convertible Arbitrage
 Investing in AssetBacked Securities
 Exercises
Evaluation and Termination of the Seminar