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Trading Case B02

Case Objective

To understand bond prices and interest rates in a multi-period setting. 

A second objective is to understand the concept of cash matching.  In particular, the idea of creating a security from other securities such as engineering a synthetic coupon bond from zero coupon bonds.

A third objective is to master the operational details associated with trading bonds in a continuous double auction institution -- the form used in the real world secondary trading markets.  The Primary dealers are the market makers and the retail general investing public are the market takers.  In this case you get to play both roles -- Primary dealer as well as retail investor.

Key Concepts

Time value of money, interest rates and cash matching.

Textbook Integration:  Background Reading

Section 2.3 Bond Prices:  Multi-Period Case

Market Microstructure:  Rules Governing Trading

 market microstructure.

Trading Case B02A

Case Objective

This case extends B02 (see above) to add both future interest rate uncertainty and private information.  This links concepts associated with the efficient markets hypothesis to the fixed income markets.  That is, how well do bond prices reflect the information that is privately available to different members of the trading crowd.

Key Concepts

Informational efficiency and bond pricing.  Interest rate uncertainty.

Instructor References for the FTS Interactive Markets

Overview of FTS Interactive Markets

Teaching Guide