Fixed Income

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Anand Singh

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I just completed a very prelimnary first read of the fixed income section.
I think it is an important part of the exam and carries a lot of weight. I think that the concepts here are difficult and there are a lot of thinks in the curriculum which you are not supposed to know.
I think the models chapter bugged me very much.It was recently introduced and I overemphasized on this.
I want to know that are we supposed to know everything on this chapter like the black scholes model to price bonds and all.
 
Anand Singh wrote:I want to know that are we supposed to know everything on this chapter like the black scholes model to price bonds and all.
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Not to put too fine a point on it, but the Black-Scholes(-Merton) model is not used to price bonds. It’s used to price options (that do not depend on future interest rates, such as options on stocks).
(Yes, it is mentioned in the fixed income study session, but only in regard to valuing call options on stock in connection to valuing convertible bonds; it’s valuing the stock option, not the bond.)
 
Looking at the Learning objectives, I am assuming when it says “describe” vs “calculate” they just want you to grasp what some FI models are saying. Im reading aobut these CIR and Vasicek models right now and Id be shocked if dr = a9b-r)dt +osqrtrdz was on the exam. You need computers to figure these out. Im just trying to understand the differences and what the h**l they mean which is hard enough, not so much how to calculate. Im a fixed income trader and have never heard of some of this stuff in reading 42
 
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