Module Specifications..
Current Academic Year 2023 - 2024
Please note that this information is subject to change.
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Description This undergraduate course introduces the main tools for pricing and hedging fixed-income securities and their derivatives, with emphasis on the application of main models. Interest-rate contracts: bonds, swaps, caps and floors, options, swaptions. Term-structure estimation: bootstrap, splines. Shortrate models: Vasicek, Cox-Ingersoll-Ross, and related models. Forward-rates and Heath-Jarrow-Morton approach. Market (LIBOR) models. | |||||||||||||||||||||||||||||||||||||||||
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Learning Outcomes 1. Understand interest rate contracts 2. Use mainstream models to price fixed income securities 3. Estimate the term structure 4. Apply common models to hedge and immunize liabilities linked to interest-rates 5. Derive the dynamics of bonds from that of interest rates and viceversa 6. Recognize arbitrage opportunities among interest-rate contracts, or lack thereof | |||||||||||||||||||||||||||||||||||||||||
All module information is indicative and subject to change. For further information,students are advised to refer to the University's Marks and Standards and Programme Specific Regulations at: http://www.dcu.ie/registry/examinations/index.shtml |
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Indicative Content and Learning Activities
Interest Rates and Related ContractsZero-Coupon Bonds, Interest Rates, Money-Market Account and Short Rates, Coupon Bonds, Swaps and Yields, Market Conventions, Caps and Floors, SwaptionsEstimating the Term-StructureBootstrapping, Non-parametric Estimation Methods, Parametric Estimation Methods, Principal Component AnalysisShort-Rate ModelsDiffusion Short-Rate Models, Inverting the Forward Curve, Affine Term-Structures, Vasicek Model, CIR, Dothan Model, Ho–Lee Model, Hull–White ModelHeath–Jarrow–Morton (HJM) MethodologyForward Curve Movements, Absence of Arbitrage, Short-Rate Dynamics, HJM Models, Proportional Volatility, Fubini’s TheoremForward MeasuresT -Bond as Numeraire, Bond Option Pricing, Black–Scholes Model with Gaussian Interest RatesForwards and FuturesForward Contracts, Futures Contracts, Interest Rate Futures, Forward vs. Futures in a Gaussian SetupMarket ModelsHeuristic Derivation, LIBOR Market Model, LIBOR Dynamics Under Different Measures, Implied Bond Market, Implied Money-Market Account, Swaption Pricing, Monte Carlo Simulation of the LIBOR Market Model, Volatility Structure and Calibration, Continuous-Tenor Case | |||||||||||||||||||||||||||||||||||||||||
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Indicative Reading List
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Other Resources None | |||||||||||||||||||||||||||||||||||||||||
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