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Module Specifications

Archived Version 2020 - 2021

Module Title
Module Code
School

Online Module Resources

NFQ level 9 Credit Rating 7.5
Pre-requisite None
Co-requisite None
Compatibles None
Incompatibles None
Description

This graduate course focuses on a rigorous treatment of models for pricing and hedging fixed-income securities, with emphasis on continuous-time. 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.

Learning Outcomes

1. Price fixed-income securities
2. Estimate the term structure
3. Prove main results in fixed-income theory
4. Design strategies to hedge and immunize liabilities linked to interest-rates
5. Evaluate critically relative advantages of various model specifications
6. Develop pricing and hedging methods for new interest-rate related products



Workload Full-time hours per semester
Type Hours Description
Lecture36Classes
Directed learning3Final Exam
Seminars5Attendance to Research Seminars
Independent Study150Independent work on textbooks and related papers
Total Workload: 194

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

Indicative Content and Learning Activities

Interest Rates and Related Contracts
Zero-Coupon Bonds, Interest Rates, Money-Market Account and Short Rates, Coupon Bonds, Swaps and Yields, Market Conventions, Caps and Floors, Swaptions

Estimating the Term-Structure
Bootstrapping, Non-parametric Estimation Methods, Parametric Estimation Methods, Principal Component Analysis

Short-Rate Models
Diffusion Short-Rate Models, Inverting the Forward Curve, Affine Term-Structures, Vasicek Model, CIR, Dothan Model, Ho–Lee Model, Hull–White Model

Heath–Jarrow–Morton (HJM) Methodology
Forward Curve Movements, Absence of Arbitrage, Short-Rate Dynamics, HJM Models, Proportional Volatility, Fubini’s Theorem

Forward Measures
T -Bond as Numeraire, Bond Option Pricing, Black–Scholes Model with Gaussian Interest Rates

Forwards and Futures
Forward Contracts, Futures Contracts, Interest Rate Futures, Forward vs. Futures in a Gaussian Setup

Market Models
Heuristic 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

Assessment Breakdown
Continuous Assessment% Examination Weight%
Course Work Breakdown
TypeDescription% of totalAssessment Date
Reassessment Requirement
Resit arrangements are explained by the following categories;
1 = A resit is available for all components of the module
2 = No resit is available for 100% continuous assessment module
3 = No resit is available for the continuous assessment component
Unavailable
Indicative Reading List

  • Damir Filipovic,: 0, Term-Structure Models: A Graduate Course, 978-3-540-09726-6
  • Pietro Veronesi: 2010, Fixed income securities, Wiley, Hoboken, N.J., 0470109106
Other Resources

None
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