Finance 525 Fixed-Income Securities

Phil Dybvig

Washington University Olin School

Focus: concepts and tools that are useful for investors, issuers, traders, and hedgers in bonds and other interest-sensitive contracts.

Fixed-income securities include bonds that promise a fixed income stream and by extension all securities whose valuation and hedging are related to interest rates. Quantitative tools are especially important for understanding fixed-income securities: their cash flows are contractually specified which makes it relatively easy to quantify the payoffs, yet the subtleties of interest rate movements and credit risk ensure that quantitative analysis is useful. This course is focused on the concepts and tools that are useful to managers who want to use these securities, whether for investing, hedging, market-making, or speculating.

At the frontier: This area has had a lot of important developments in recent years. Students should leave Washington University familiar with traditional tools as well as recent innovations.

Prerequisites Introductory Finance (5200 or both 5201 and 5202) is the only formal prerequisite, but it is a good idea to study options and futures first. As in most quantitative courses, students with the strongest math backgrounds will breeze through most easily. This course places more quantitative demands on students than is typical of our other finance courses.

Organization of the course The course will be in a traditional lecture format, with a final exam in the exam period.

Course Requirements Grades in the course will be based mainly on the final examination, which will measure understanding of the tools and concepts from the lectures. Class participation may change a grade near a cutoff. Understandably, job search or other obligations may occasionally conflict with class. It is your responsibility to find out from your classmates what you miss when you are absent.

Course materials Course materials include an optional text and slides that are available on the web. There is no separate packet.

Transparencies The lectures will be based on transparencies that are available on the Web. You will probably want to print a paper copy of the transparency before each class for cross-reference during class, for study, and for taking notes on. The slides are available from the course page, which can be accessed directly or through Blackboard or throught the mirror site The materials are still under revision; be sure to use reload on your browser to get the most current version. I also invite you to visit my home page, which includes a lot of my teaching and research.

Practice Problems For this offering, I am reorganizing the practice problems. Some will be based on problems created by my earlier TAs Paskalis Glabanidis and Yufeng Han. Although Kangzhen and I will do our best to eliminate any gremlins before you see the problems, some will probably creep in. I will appreciate any assistance in pointing out problems, and such assistance will count favorably if your grade is at a margin.

Textbooks There is a single optional textbook for the class. Fixed-Income Securities: Tools for Today's Markets, by Bruce Tuckman, is a good book for your learning and reference. I recommend getting the paperback "University Edition" which includes problems at the end of the chapters. (I am looking into putting the answers from the instructor's manual on Blackboard.)

Teaching Assistance Kangzhen Xie will assist in offering the course. He is a doctoral student working in the area of investments and asset pricing. He is a likeable guy and I predict you will discover that we are fortunate to have his assistance. His e-mail address is

and his office is in Simon 286. His office phone number is 935-4569, and his cell number is 541-1538. Of course, you can also direct your questions to me; I recommend e-mail at

as an effective way of tracking me down quickly.

About you In addition to enrolling through the proper authorities, please send me an e-mail with the following information:

If you enroll and later choose to drop the class, please let me know about that, too. If you are willing, please also include feedback about why the course didn't work for you.

About me I was previously a tenured full professor at Yale, and I came to Wash U in 1988 in the hope of building a top finance group, which we have done. More information on me is in the chatty blurb at or in my vitae at All of my Web pages can be accessed through my home page.

Feedback Feedback is especially important to me. Written feedback by e-mail is especially useful.

Integrity Students are expected to conform to the Olin School's Code of Conduct.

Summary I invite you to join me in exploring the exciting field of investments!