Interest Rate Models

Description

This course provides a basic understanding of interest rates and related contracts. LIBOR, bonds, forward rate agreements, swaps, interest rate futures, caps, floors, and swaptions are examples of these. We will learn how to use the fundamental tools duration and convexity to manage a bond portfolio's interest rate risk. We'll practise estimating term structure from market data. We will learn the fundamentals of stochastic calculus, which will allow you to design a wide range of stochastic interest rate models. In this context, we will also look at the arbitrage pricing theorem, which serves as the basis for pricing financial derivatives. We will also go over the industry-standard Black and Bachelier pricing caps, floors, and swaptions.

Syllabus :

1. Interest Rates and Related Contracts

• Interest Rates and Discount Bonds
• Forward and Futures Rates
• Coupon Bonds and Interest Rate Swaps
• Duration and Convexity
• Market Conventions

 

2. Estimating the Term Structure

• Bootstrapping Example
• Exact Methods
• Smoothing Methods
• Principal Component Analysis

 

3. Stochastic Models

• Stochastic Calculus
• Short Rate Models
• Heath-Jarrow-Morton Framework
• Forward Measures

 

4. Interest Rate Derivatives

• Interest Rate Futures and Convexity Adjustment
• Caps and Floors
• Swaptions

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