GRA 6539 Fixed Income Securities

GRA 6539 Fixed Income Securities

Course code: 
GRA 6539
Course coordinator: 
Thomas Kjær Poulsen
Course name in Norwegian: 
Fixed Income Securities
Product category: 
MSc in Finance
2024 Spring
Active status: 
Level of study: 
Teaching language: 
Course type: 
One semester

This course covers the use and valuation of fixed income securities, like sovereign and corporate bonds, and their derivatives. A fixed income security is a security for which the rule determining future cash flows is set, when the security is issued. The classical example of a fixed income security is a treasury bond, with fixed coupon payments. As long as the government can be trusted to avoid default, there is no cash-flow uncertainty for the bond. In this context, there is only one major source of uncertainty, future interest rates.

The fixed income market is the biggest financial market in the world and includes many different types of debt instruments like pure discount bonds, floating rate notes, callable and puttable bonds, and other. The probability that the issuer will default complicates the analysis with the introduction of credit risk, which creates the division between investment grade and high yield bonds. Further, the liquidity is another risk that holders of such securities need to account for.

Derivatives allow market participants to trade interest rate and credit risk directly with the use of contracts like interest rate and credit default swaps. These enlarge the options available to investors and corporations in relation to their risk-taking and risk-management activities.

A good understanding of fixed income instruments, their derivatives, and markets is very important to financial professionals and very useful to a wider audience of investors and households. In addition, due to the magnitude of the market and the complexity of the instruments there exist many career opportunities in this sector of the financial industry. 

Learning outcomes - Knowledge

By the end of the course, the students will gain understanding of the major institutional characteristics and some key technical know-how of the design and the valuation of fixed-income instruments. To that end, in addition to understanding the economic intuition, the students will be expected to solve problems, which will go into the formal modeling issues, including interest rate and credit risk modeling.

Acquired knowledge includes:

  1. Ability to identify the determinants of risk and return of debt securities. The emphasis is on pricing of fixed income securities, including fixed income derivatives.
  2. Fixed income portfolio management techniques
  3. The role of fixed income securities in risk management
Learning outcomes - Skills

Students will

  1. use and/or develop certain quantitative skills, e.g, will learn to utilize Excel and/or R for solving simple, but realistic problems that may arise in the fixed income market, will learn to apply binomial tree and Monte Carlo simulation approaches to asset valuation and risk assessment.
  2. be able to explain interdependencies of risk factors.
General Competence

Students should

  1. gain a unified understanding of the interdependencies of factors affecting fixed income securities.
  2. be able to analyze problems that go beyond those explicitly covered in class/the required book.
Course content

The following list gives an overview of the key topics to be covered in the course:

  • An overview of debt securities markets
  • Bond pricing and arbitrage
  • Duration and convexity
  • Interest rate derivatives
  • Central banks, inflation, and monetary policy
  • The term structure of interest rates in discrete time
  • Fixed income pricing using Binomial models and Monte Carlo simulations
  • Credit risk modelling and credit default swaps (CDS)
  • Liquididity risk in fixed income markets
Teaching and learning activities

Students are expected to read the assigned chapters before class. Active class participation is expected during lectures. Online quizzes, practice problems, and problem sets involving real market data will be distributed during the course.

Examples highlighting and demonstrating often-used, practical applications of fixed-income-securities' pricing are used in the class.

Software tools
Additional information

The exam for this course has been changed starting academic year 2023/2024. The course now has two exam codes instead of one. It is not possible to retake the old version of the exam. Please note new exam codes in the Exam section of the course description. 

It is the student’s own responsibility to obtain any information provided in class.

Honour Code
Academic honesty and trust are important to all of us as individuals, and represent values that are encouraged and promoted by the honour code system. This is a most significant university tradition. Students are responsible for familiarizing themselves with the ideals of the honour code system, to which the faculty are also deeply committed. Any violation of the honour code will be dealt with in accordance with BI’s procedures for cheating. These issues are a serious matter to everyone associated with the programs at BI and are at the heart of the honour code and academic integrity. If you have any questions about your responsibilities under the honour code, please ask.


All courses in the Masters programme will assume that students have fulfilled the admission requirements for the programme. In addition, courses in second, third and/or fourth semester can have specific prerequisites and will assume that students have followed normal study progression. For double degree and exchange students, please note that equivalent courses are accepted.


Deviations in teaching and exams may occur if external conditions or unforeseen events call for this.

Exam category: 
Form of assessment: 
Written submission
Group/Individual (1 - 3)
24 Hour(s)
Take-home examination
Exam code: 
GRA 65392
Grading scale: 
Examination when next scheduled course
Exam category: 
Form of assessment: 
Written submission
Support materials: 
  • All printed and handwritten support materials
  • BI-approved exam calculator
  • Simple calculator
  • Bilingual dictionary
3 Hour(s)
Written examination under supervision
Exam code: 
GRA 65393
Grading scale: 
Examination when next scheduled course
Type of Assessment: 
Ordinary examination
All exams must be passed to get a grade in this course.
Total weight: 
Student workload
24 Hour(s)
27 Hour(s)
Digital resources
12 Hour(s)
Group work / Assignments
25 Hour(s)
Student's own work with learning resources
72 Hour(s)
Sum workload: 

A course of 1 ECTS credit corresponds to a workload of 26-30 hours. Therefore a course of 6 ECTS credits corresponds to a workload of at least 160 hours.