Specialist track, course code FI
Fixed Income and Credit
Fixed income and credit for quants: how bonds, mortgage pools and credit derivatives are priced, how rate and credit risk are measured and hedged, and the models banks use to value both.
Fixed income is the largest securities market in the world and the one quant interviews test most unevenly. Equities get the attention, but every price in a bank is discounted on a yield curve, every pension fund hedges its rate risk, and the 2008 crisis was a crisis of mortgage and credit models. This track covers all of it.
What does the fixed income track cover?
Bond Pricing and the Yield Curve covers prices and yields, duration and convexity, curve building and curve trades. Mortgage-Backed Securities covers pools, prepayment, option-adjusted spread and the lessons of 2008. Credit Default Swaps covers hazard rates, the CDS curve, index products and the standard model. At researcher level, Interest Rate Models covers short-rate models, the LIBOR and SOFR market models and swaption pricing, and Copula Models for Credit Risk covers default correlation and the pricing of credit tranches.
How do these courses connect to the rest of the catalogue?
Bond pricing is part of the Certificate in Systematic Investing, the Certificate in Derivatives Pricing and the Certificate in Quantitative Portfolio Management. The credit courses sit in the Certificate in Quantitative Risk Management, where they join counterparty credit risk and Basel capital. Interest rate models sit in the derivatives certificate. Every course here therefore counts toward the Professional Diploma in Algorithmic Trading or the Fellowship in Computational Finance.
How are the courses taught?
Like every course at the Institute: an audio edition for the general subject, explainer films for the ideas that are easier seen than heard, and extensive workbooks with worked examples, notebooks and cheat sheets. Written work receives written feedback from the faculty, and each paid course ends in a proctored online exam.
Practitioner courses in this track
Lab-based courses. You build, test and cost real strategies and systems on market data.
- Bond Pricing and the Yield Curve Bond pricing and the yield curve from first principles to desk practice: price and yield, duration and convexity, bootstrapping and fitting curves, carry and roll-down, and hedging a bond portfolio's interest rate risk.
- Credit Default Swaps Credit default swaps from the contract to the model: what is protected and paid, hazard rates and survival curves, bootstrapping a CDS curve with the ISDA standard model, index products, and the basis between bonds and CDS.
- Mortgage-Backed Securities How mortgage-backed securities work and how they are valued: the mortgage pool and its cash flows, prepayment and its models, option-adjusted spread, structured CMO tranches, and what the 2008 crisis showed about all of these.
Researcher courses in this track
Proof-level courses. Stochastic models, estimation theory and the literature behind each method.
- Copula Models for Credit Risk How dependence between defaults is modelled: copulas and Sklar's theorem, the Gaussian and Student t copulas, the one-factor portfolio model behind Basel capital, CDO tranche pricing, and the failure of these models in 2008.
- Interest Rate Models The models banks use to price options on interest rates: short-rate models from Vasicek to Hull-White, the Heath-Jarrow-Morton framework, the market models behind caps and swaptions, the move from LIBOR to SOFR, and calibration to market prices.
Credentials that use this track
- Certificate in Systematic InvestingOne semester of twelve courses and a capstone on rule-based investing over months and years: asset pricing, trend, factors, carry, allocation and the portfolio construction and risk control that hold them together.
- Certificate in Quantitative Portfolio ManagementOne semester of twelve courses and a capstone on building portfolios with numbers: mean-variance and its failures, robust optimisation, Black-Litterman views, factors, asset allocation, bonds, attribution and risk.
- Certificate in Quantitative Risk ManagementA financial risk management certification in one semester of eleven courses and a capstone on measuring and governing market and credit risk: VaR and expected shortfall, volatility models, stress tests, credit and counterparty risk, bank capital and the validation of the models themselves.
- Certificate in Derivatives PricingDerivative pricing in one semester of ten courses and a capstone, from stochastic calculus to stochastic volatility and interest rate models: how options are priced, hedged, traded and calibrated to the market.
- Professional Diploma in Algorithmic TradingThe top credential on the practitioner path. Four semesters, 41 courses and a 160-hour capstone covering everything between the mathematics and a book you could defend to a risk committee.
- Fellowship in Computational FinanceThe top credential on the researcher path. Four semesters, 38 courses, and a dissertation supervised in writing and examined by two faculty members.
Questions applicants ask
What is fixed income?
Fixed income is the market for debt: government and corporate bonds, mortgage-backed securities, money-market instruments and the derivatives written on them. It is larger than the stock market, and its yield curve sets the discount rate for every other price.
Do I need fixed income if I want to trade equities?
You need the curve and the idea of duration, which the first course gives. The later courses matter most for roles in rates, credit, risk, model validation and multi-asset portfolios.