Interest Rate Models
About this course
This course gives you an easy introduction to interest rates and related contracts. These include the LIBOR, bonds, forward rate agreements, swaps, interest rate futures, caps, floors, and swaptions. We will learn how to apply the basic tools duration and convexity for managing the interest rate risk of a bond portfolio. We will gain practice in estimating the term structure from market data. We will learn the basic facts from stochastic calculus that will enable you to engineer a large variety of stochastic interest rate models. In this context, we will also review the arbitrage pricing theorem that provides the foundation for pricing financial derivatives. We will also cover the industry standard Black and Bachelier formulas for pricing caps, floors, and swaptions. At the end of this course you will know how to calibrate an interest rate model to market data and how to price interest rate derivatives.
75/100
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What you'll learn
- Apply duration and convexity to manage interest rate risk in bond portfolios
- Estimate the term structure of interest rates from market data
- Build stochastic interest rate models using tools from stochastic calculus
- Price interest rate derivatives using Black and Bachelier formulas
- Calibrate interest rate models to market data
Course objectives
- Understand key interest rate instruments including LIBOR, bonds, forward rate agreements, swaps, futures, caps, floors, and swaptions
- Master the arbitrage pricing theorem as the foundation for derivatives pricing
- Develop practical skills in engineering and calibrating stochastic interest rate models
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