Scott F Richard
Practice Professor of Finance
Research Interests: asset pricing and the macro-economy.
the term structure of interest rates.
the global bond market., growth of government
FNCE894 - Managing Fixed-Income Portfolios
The goal of this course is to teach you how to manage a real portfolio of Treasury, sovereign, corporate and mortgage bonds. We develop three basic models for the Treasury yield curve, corporate and sovereign credit spreads, and use these models to find value in the bond market. To implement the concepts learned in class, students form teams to manage a paper portfolio using Barclays Point, a state-of-the-art portfolio management system. Your team trades a $1 billion portfolio of bonds for which your goal will be to outperform the Barclays Aggregate Index. You trade real securities at real prices - only the money is fake. We begin by relating the term structure of interest rates to the market's view of the fundamental macroeconomic states of growth, unemployment, and inflation. To do this we need to understand a multifactor term structure model, which extends the Vasicek model you studied in the prerequisite course. Any bond other than a Treasury has an embedded option, either to default, prepay, or in some other way reduce the promised payments to bondholders. Robert Merton was the first to recognize explicitly that any corporate bond can be evaluated by calculating the value of the default option. Merton's model and its extensions are currently the state of the art models used in asset management firms for valuing bonds.