MTH5520 · Interest rate modelling

Overview

Interest rate curves. Zero-coupon bonds, spot and forward interest rates. Interest rate derivatives. Stochastic differential equations. Change of measures. No arbitrage pricing and change of numeraire. One-factor short rate models, including Vasicek, Hull and White, CIR and affine models. Two-factor short rate models. The HJM framework and models for forward rates. LIBOR models. Pricing of interest rate derivatives: swaps, caps and swaptions.

Offerings

Assessment

The Handbook lists an examination for this unit.

Assessment details may change. Please refer to the assessment information in Moodle closer to the start of the teaching period.

Requisites

The Handbook lists no prerequisite, corequisite or prohibition for this unit.

Learning outcomes

1. Develop specialised mathematical knowledge and skills within the field of stochastic calculus.
2. Understand the complex connections between financial and probabilistic concepts.
3. Apply sophisticated stochastic modelling skills within the context of interest rate modelling.
4. Apply critical thinking to problems in interest rate modelling.
5. Formulate expert solutions to practical financial problems using specialised cognitive and technical skills within the field of stochastic calculus.
6. Communicate complex information in an accessible format to a non-mathematical audience.

Workload

• Two 1.5 -hour seminars; • One 1-hour applied class (in weeks 2-12) and • Eight hours of independent study per week

Student experience, not official rules. Nothing here changes what the Handbook says.