Leonard N. Stern School of Business

Debt Instruments and Markets

Prof. Ian Giddy

E-mail: ian.giddy@nyu.edu   Web: http://giddy.org


Students taking this course should expect to learn the nature and purposes of some fixed- income securities and markets. They will gain skills in modern valuation techniques, including the use of the zero-coupon curve, duration and convexity, option-adjusted spreads and the discount margin method for floating-rate notes. They will learn about Treasuries, corporates and floating-rate notes, about callable bonds and mortgage-backed securities, and about swap valuation and trading..


Ian Giddy has taught finance at NYU, Columbia, Wharton, Chicago and abroad for the past tweny-five years. He was Director of International Fixed Income Research at Drexel Burnham Lambert from 1986 to 1989. The author of more than fifty articles on international finance, he has served at the International Monetary Fund and the U.S. Treasury and has been a consultant with numerous financial institutions and corporations in the U.S. and abroad. He is the author or co-author of The International Money Market, The Handbook of International Finance, Cases in International Finance, Global Financial Markets and The Hudson River Watertrail Guide.


The course employs cases and problems as well as classroom lectures and discussions and a bond portfolio management simulation and a swap negotiation exercise. We will make use of international as well as domestic examples. Each student will be expected to participate actively in class discussion. There will be a final exam.


Frank J. Fabozzi, Bond Markets, Analysis and Strategies, 4th Ed. (Prentice-Hall, 1999). A supplementary book is Frank J. Fabozzi, ed., The Handbook of Fixed Income Securities, 6th edition (McGraw-Hill). The latter book can serve as a standard reference source beyond the course. For short term fixed income securities, get Instruments of the Money Market, published by the Federal Reserve Bank of Richmond; or Dufey and Giddy, The International Money Market (Prentice-Hall, 1994). Additional readings will be made available in a readings package.

Students should have read the assignments before coming to class. Material covered in the assigned textbook readings will generally not be repeated in class. Rather, class time will be devoted to lecture and case discussion, applying the material covered in the readings.

Portfolio Management Simulation

Each student will manage a hypothetical portfolio of bonds during the course. Selections must be made from a list to be provided by the instructor. The goal will be to beat a passive portfolio. Students will apply the concepts learned in the course to select which bonds to buy and which to sell, and to evaluate the interest rate sensitivity of the portfolio. It might help to read Fabozzi, "Active Bond Portfolio Management."


Students will be provided with software to assist in the valuation of Treasury bonds, callable and putable corporate bonds, swaps and swaptions.

Swap Negotiation Exercise

Teams representing different banks will negotiate a swap with one another. This swap negotiation exercise is designed to emphasize the mechanics and principles of interest rate swaps and currency swaps.


The course grade will be determined as follows: Class Participation 10%, Portfolio Assignment 10%, Swap Negotiation 10%, Problems 30%, Final Examination 40%.

Additional Reading

The following books may be useful to those wishing to learn more about the fixed-income markets:

  1. Fabozzi, Frank and Dessa Garlicki Bond Analysis and Portfolio Strategies (Probus, 1987)
  2. Hull, Anthony, Futures, Options and Other Derivative Securities (2nd ed: Prentice-Hall, 1993)
  3. Kuhn, Robert, Corporate and Municipal Securities (Dow Jones-Irwin, 1990)
  4. Marshall, John and Vipul Bansal, Financial Engineering (NY Inst. of Finance, 1992)
  5. Saunders, Anthony, Financial Institutions Management (Irwin, 1994)
  6. Wilson, Richard and Frank Fabozzi, The New Corporate Bond Market (Probus, 1990)

  1. Valuation of Fixed-Income Securities
  2. The Yield Curve, the Spot Curve, and the Credit Spread Curve
  3. Bonds, FRAs, Futures and Swaps
  4. Duration, Convexity and Interest Sensitivity
  5. Duration, Convexity and Interest Sensitivity (cont)
  6. International Fixed-Income Markets: Pricing and Performance
  7. Fixed-Income Instruments: Domestic and International; Floating-Rate Notes
  8. Valuation of Bonds with Options
  9. Callable Bonds: Fixed vs Floating
  10. Corporate Bonds and MTNs
  11. Mortgage-Backed Securities
  12. Mortgage-Backed Derivatives, Such as CMOs
  13. Portfolio Analysis of Bonds
  14. Fixed-Income Portfolio Strategy and Performance
  15. Assignment due: Portfolio report
  16. Swap Negotiation Exercise
  17. Swaps
  18. Caps, Collars and Swaptions
  19. Structured Debt Financing and Hybrid Bonds
  20. Review of the Course

Go to Giddy's Web Portal • Contact Ian Giddy at ian.giddy@nyu.edu