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Description:	This course will convey the basic concepts and analytical methodology for interest rate modeling and the valuation of interest based products.
Topics:	Continuous time financial market models with stochastic interest rate the T-forward measure; zero-coupon bonds, yield, instantaneous short interest rate, instantaneous forward interest rate; the term structure of the interest rates; extensions of  Black-Scholes-Merton model; the forward price and the futures price; contingent claims risk neutral valuation; Instantaneous short interest rate models the valuation equation, the market price of risk; affine term structure models, Vasicek model, Cox-Ingersoll-Ross model; the calibration to data, Hoo-Lee model, Hull-White model; Coupon-bearing bonds clean price, dirty price, accrued interest the forward price and the futures price of a coupon- bearing bond; options on coupon- bearing bonds; “bootstrapping” (constructing the term structure of interest rate) using coupon- bearing bonds; Instantaneous forward interest rate models the Heath-Jarrow-Morton framework; instantaneous short interest rate dynamics, zero-coupon bond price dynamics; the no-arbitrage condition of the HJM framework, HJM drift condition; the volatility term structure of  the instantaneous forward interest rates, the volatility of zero-coupon bonds; LIBOR models spot LIBOR, forward LIBOR; forward LIBOR models, discrete tenor case, Brace-Gatarek-Musiela model; valuation of interest rate swaps, swap rate; valuation of interest rate options, caps , floors, swamptions; “bootstrapping” using swap rates; Eurodollar contracts, implied futures LIBOR, convexity adjustment; Defaultable bonds structural credit-risk models the case of no-default prior to maturity, the case of default prior to maturity.
Teaching:	42 hours during third semester