Unit 3 of 14

Cash flows instruments and curves

  • 8 lessons
  • Videos 17 to 24

Bonds, forwards, futures, swaps and currency and commodity contracts are schedules of dated cash flows. This unit values them from discount curves and replication under explicit conventions.

Coupon bonds lead to accrued interest, clean and full prices and yield to maturity, and bootstrapping recovers discount factors from prices, with interpolation as a modeling choice. Duration, convexity and key rate durations measure rate sensitivity. Forward prices follow from replication with carry and dividends, daily settlement separates futures from forwards when rates are random, and swaps are valued from their fixed and floating legs. Covered interest parity holds under ideal funding assumptions, and commodity carry relations become bounds when inventory cannot be borrowed and sold.

Every lesson will be one video. The videos are coming soon, and each lesson page already has the definitions and an example for every key term.

Bonds, discount curves and rate sensitivities

  1. Bond cash flows and yield mathematics

    How a coupon bond is valued from its dated payments, how accrued interest links the clean price to the full price, and when the yield to maturity, an internal rate of return, is unique and a realized return.

    Video 17

  2. Bootstrapping discount curves

    How bootstrapping solves a triangular system of bond prices for discount factors at the curve nodes, why curve interpolation is a separate modeling choice, and how implied forward rates and repricing test curve consistency.

    Video 18

  3. Duration convexity and key rate sensitivities

    How Macaulay duration, modified duration and convexity follow from yield derivatives of a bond's price, how the second-order price approximation compares with repricing, and what key rate durations add to a parallel yield shift.

    Video 19

Forwards, futures and swaps

  1. Forwards and cost of carry

    How replication gives the forward price from the prepaid forward and the cost of carry, for known cash dividends and for a continuous dividend yield, and how an existing forward is valued.

    Video 20

  2. Futures daily settlement and convexity

    How daily settlement and variation margin shape futures cash flows, why the futures price is a pricing-measure expectation, and how random rates create a forward-futures difference and a convexity adjustment.

    Video 21

  3. Interest rate swaps and forward rate agreements

    How forward rate agreements and interest rate swaps are valued from discount factors through the fixed leg, floating leg, swap annuity and par swap rate, and when single-curve telescoping holds.

    Video 22

Currency and commodity forwards

  1. Foreign exchange and covered interest parity

    How quotation units fix the FX forward through covered interest parity, how the domestic pricing measure reads it as an expectation, and what the reciprocal quotation and the cross-currency basis change.

    Video 23

  2. Commodity forwards storage and convenience yield

    How storage costs and the convenience yield enter commodity forward prices, why cash-and-carry gives an upper bound and reverse cash-and-carry the equality, and how the net carrying rate decides contango or backwardation.

    Video 24