FIXED INCOME AND MANAGEMENT OF MARKET RISK - BMEGT35M126

Fixed income securities cover a great set of securities ranging from treasury (zero-coupon-yield) securities to all kinds of asset backed and structured products. Investing into these securities entails various types of markets risks (interest rate risk, foreign currency risk, country risk etc.). The aim of this course is to introduce the most relevant risk characteristics of these financial products to students and the way of measuring and managing these risks. After a general overview of pricing methodologies, questions related to interest rate exposure are tackled, for instance how yield curve shifts affect investments in fixed income securities and how duration and convexity should be calculated. The audience will learn about the basic segments of fixed income securities markets, such as government securities mar-kets, mortgage and covered bonds and newly emerging structured products. The issues of risk management will be presented in several aspects, by dealing with foreign currency and interest rate swaps, duration hedging, CDSs, port-folio risk management methods. Loss distribution and risk models related to fixed income securities will be briefly discussed as well. The agenda partly covers a the first, third, fourth and fifth topics (Foundations of Risk Management; Financial Mar-kets and Products, Valuation and Risk Models and Market Risk Management) of the FRM (Financial Risk Manager) Exam and the modul VII. (Fixed Income) of the CFA (Chartered Financial Analyst). This gives immensely useful and practical knowledge to the audience in real life.

1. market risks related to fixed income assets;
2. basic segments of fixed income securities markets;
3. measurement of market risk in relation to fixed income securities - CDS, duration, convexity;
4. risk mitigation techniques (duration hedging, IRS etc.).

1. plan and organize independent learning,
2. comprehend and use the professional literature of the topic,
3. recognize and measure the risks related fixed income instruments,
4. perform calculations to support decision-making.

1. is open to getting to know and adapting innovations in the financial field;
2. ollaborates with their instructors and others during the learning process;
3. gains knowledge and information;
4. uses the possibilities offered by IT tools.

1. is open to accept constructive criticism;
2. collaborates with others to solve problems during the learning process;
3. could make prudent financial decisions;
4. understands the importance and weight of responsibility and can assess the consequences of decisions.

Lectures, written and oral communication, use of IT tools and techniques, optional tasks alone and in groups.

• Kötelező - Obligatory:
• 1. Az előadások prezentációinak anyaga, ami a félév során folyamatosan frissül a tantárgy oldalán. Slideshows of the lectures which will be uploaded continuously during the semester.
• 2. CME Group, Interest rates Risk Management for Fixed Income Asset Managers. https://www.cmegroup.com/education/files/AM-001_RiskMgmt-for-Fixed-Income-AM.pdf
• 3. Riskmetrics Group, Risk Management. A Practical Guide. 1st edition. https://www.msci.com/documents/10199/3c2dcea9-97be-4fb4-befe-a03b75c885aa
• Ajánlott - Recommended:
• 4. Christian Szylar, Handbook of Market Risk. A One-Stop Guide for the Theories, Applications, and Statistical Methodologies of Market Risk, John Wiley & Sons, 2014
• 5. Zvi Bodie-Alex Kane-Alan J. Marcus, Investments, 11th Edition, MacGrawHill, 2018
• 6. Philippe Jorion, Financial Risk Manager Handbook (GARP), 6th Edition, Wiley, 2011
• 7. John C. Hull, Risk Management and Financial Institutions, Wiley, 2015
• 8. Steve Allen, Financial Risk Management: A Practitioner’s Guide to Managing Market and Credit Risk, Wiley, 2013

Assessment of the learning outcomes described under 2.2. is based on a mid-term exam. Each of the mid-term exams affects the final grade by 50%: the total score is a weighted average of mid-term exam 1 (50%) and mid-term exam 2 (50%)

A. Szorgalmi időszakban végzett teljesítményértékelések részletes leírása - Detailed description of mid-term per-formance assessments - Two mid-term exams assess the knowledge and skill competencies obtained through the subject which cover both theoretical knowledge and problem-solving. Working time for the exam is announced during the semester. B. Vizsgaidőszakban végzett teljesítményértékelések - Detailed description of examination performance as-sessments - The complete assessment of knowledge happens during the semester

• Mid-term exam n.1: 50
• Mid-term exam n.2: 50

The written tests can be retaken once in line with the rules laid down in TVSZ.

Consulted with the Faculty Student Representative Committee, approved by the Vice Dean for Education, valid from: 03.03.2025.

Subject includes the topics detailed in the course syllabus to ensure learning outcomes listed under 2.2. can be achieved. Timing of the topics will be arranged by the calendar or other circumstances in each semester.