INSTITUTE OF APPLIED MATHEMATICS
Last Updated:
28/08/2017 - 21:10

IAM554 - Interest Rate Models

Credit: 3(3-0); ECTS: 8.0
Instructor(s): Consent of IAM
Prerequisites: Consent of Instructor(s)

Course Catalogue Description

Interest Rate Derivatives: Futures, Options on Bonds, and Options on Interest Rates such as Caps and Floors. Models of Arbitrage-Free pricing of Interest-Rate Derivatives: Arbitrage Pricing Theory for Derivative Securities. Basics for The Modeling of Interest-Rate movements. Dynamics of Interest-Rate movements. Short-Rate Models and the Heath-Jarrow-Morton Model of Forward Rates. Change of Numéraire Technique. Derivation of Formulae for the Pricing and Hedging of Certain Derivatives. Numerical Methods for the Actual Implementation of the Valuation of Term Structure Models.

Course Objectives

The uncertainty attached to future movements of interest rates is an essential part of the Financial Decision Theory and requires an awareness of the stochastic movement of these rates. The aim of the course is to give an insight to the notion of interest rate, the construction of various models and their applications to computation of interest rate products. Particular emphasis will be placed on the adaptation of the models to the observed market data.

Course Learning Outcomes

Tentative (Weekly) Outline

Interest Rate Derivatives: Futures, Options on Bonds, and Options on Interest Rates such as Caps and Floors. Models of Arbitrage-Free pricing of Interest-Rate Derivatives: Arbitrage Pricing Theory for Derivative Securities. Basics for The Modeling of Interest-Rate movements. Dynamics of Interest-Rate movements. Short-Rate Models and the Heath-Jarrow-Morton Model of Forward Rates. Change of Numéraire Technique. Derivation of Formulae for the Pricing and Hedging of Certain Derivatives. Numerical Methods for the Actual Implementation of the Valuation of Term Structure Models.

More Info on METU Catalogue

Back