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FM225: Fixed Income Securities, Debt Markets and the Macro Economy


Course Content

This course helps to develop the relevant knowledge and understanding of fixed income instruments and interest rate models for students aiming for a career in the fixed income field. The course will provide an overview of the major institutions, organisations and investors, and the recent developments in fixed income, covering both theoretical background and practical implementation. 

Topics will include:

  • An overview of debt markets with a focus on the US and the UK: players, institutions and various instruments.
  • Organisation and structure of debt markets. Terminology and market conventions. Specific markets: US Treasuries, corporate bonds, agency securities, repos, MBS, etc.
  • Basics of fixed income securities: interest rates and discount factors, the yield curve, coupon and zero coupon bonds.
  • Basics of interest rate risk management: variation in interest rates, duration, convexity, risk measurement and management. Interest rate risk, liquidity risk, inflation risk, credit risk.
  • Term structure models: binomial trees, risk neutral pricing, no-arbitrage and pricing of interest rate securities.
  • Monetary policy and the role of the central bank in setting interest rates. Interest rates and inflation. Relationship between interest rates and future economic activity.
  • Fixed-income derivatives: Treasury futures, Eurodollar futures, options, swaps, mortgage backed securities.
  • Credit derivatives.
  • The 2007-2009 credit crisis.

In this course we will discuss traditional debt instruments (namely government and corporate bonds) and fixed income derivatives (including mortgage-backed securities), develop the theory for valuing them and study the determinants of risk and return of fixed-income securities. We will also cover the most important state-of-the-art interest rate models, develop their theoretical underpinnings and provide examples for practical implementation.  We will also discuss the role of fixed-income securities in risk management and introduce the concepts of duration and convexity. 

The course will closely look at the interdependencies and the roles of the different players in the debt markets. In particular, we will examine the role of, and the instruments available to the central bank in setting interest rates. The major focus of the course will be on economic intuition and on understanding the products and interrelationships in the fixed income markets. Students will have the opportunity to directly implement the concepts as eight out of twelve classes will be held in the computer lab. Finally, we will relate the course topics to the credit crisis of 2007-2009 and discuss implications for the future of debt markets. 

World-class LSE teaching

The LSE’s Department of Finance has grown in recent years to become one of the largest and most highly-regarded finance groups in the UK and Europe. On this three week intensive programme, you will engage with and learn from full-time lecturers from the LSE’s finance faculty. FM225 course lecturers, Dr Philippe Mueller and Dr Andrea Vedolin, teach on a number of our undergraduate and graduate Finance modules, including Risk Management for Financial Institutions, and Quantitative Methods for Finance and Risk Analysis. In addition, both faculty members teach on the LSE's executive programmes. 


Pietro Veronesi, Fixed Income Securities: Valuation, Risk, and Risk Management, Wiley and Sons, 2010.

*A more detailed reading list will be supplied prior to the start of the programme

**Course content, faculty and dates may be subject to change without prior notice



Session: Two

Dates: 10 - 28 July 2017

Dr Philippe Mueller
Dr Christian Julliard
Dr Andrea Tamoni

Level: 200 level

Fees: Click here for information

Prerequisites: Basic mathematics and statistics.

Lectures: 36 hours 

Classes: 18 hours

Assessment*: Two written examinations

Typical credit**: 3-4 credits (US)
7.5 ECTS points (EU)

How to apply?

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*assessment is optional – see FAQs

**You will need to check with your home institution. Read more about credit transfer here.