Business Case Studies & Business Publications

Bond Trader (SIMULATION)

Schill, Michael J.

Forio Simulation

Bond Trader (SIMULATION)

Schill, Michael J.

F-1796 | Published May 15, 2017 | 2 pages

Collection: Darden School of Business

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Product Details

Bond Trader is a simulation designed to teach students the foundational themes of introductory finance in an engaging but simple simulated securities market. Bond Trader provides a powerful context for teaching such foundational themes as time value of money, equilibrium-required return, the yield curve, market efficiency and the pricing of information, financial substitutes and arbitrage-based security pricing, bond math, and financial market mechanics. In the simulation, students compete in teams or individually to maximize the value of a trading portfolio by choosing when to take positions in bond securities and when to hold cash. To increase engagement, student performance is ranked against their peers. Students make buy-and-sell decisions for each weekly trading periods of 10-15 seconds. Students experience the impact of the collective market decisions as bond prices dynamically evolve based on the aggregate buy-and-sell order flow from students and computer traders in the market, using an internet-based interface. Bond Trader has been used effectively in Darden’s first-year corporate finance course and is designed to work as an effective introduction to any standard corporate finance or investments curriculum.

Motivate fundamental themes of finance, including time value of money, equilibrium-required return, the yield curve, market efficiency and the pricing of information, and financial substitutes and arbitrage-based security pricing. Introduce and reinforce simple bond market concepts such as bond math mechanics, interest rate risk, reinvestment risk, and the expectations theory of the yield curve. Establish a powerful markets-oriented mindset among students to leverage throughout the course to motivate equilibrium behavior. Illustrate and emphasize the competitive incentives in markets that move security prices toward fair pricing. Build appreciation for market efficiency and how markets incorporate news into prices. Introduce such financial market mechanics as bid-ask spread, leverage and margin, short selling, and market making.