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