Course 2009-2010 a.y.

8223 - FIXED INCOME (ADVANCED METHODS)


MM-LS - AFC-LS - CLAPI-LS - CLEFIN-LS - CLELI-LS - DES-LS - CLG-LS - M-LS - IM-LS - ACME-LS - EMIT-LS

Department of Finance

Course taught in English

Go to class group/s: 31
MM-LS (6 credits - I sem. - AI) - AFC-LS (6 credits - I sem. - AI) - CLAPI-LS (6 credits - I sem. - AI) - CLEFIN-LS (6 credits - I sem. - AI) - CLELI-LS (6 credits - I sem. - AI) - DES-LS (6 credits - I sem. - AI) - CLG-LS (6 credits - I sem. - AI) - M-LS (6 credits - I sem. - AI) - IM-LS (6 credits - I sem. - AI) - ACME-LS (6 credits - I sem. - AI) - EMIT-LS (6 credits - I sem. - AI)
Course Director:
GIANLUCA FUSAI

Classes: 31 (I sem.)
Instructors:
Class 31: GIANLUCA FUSAI



Course Objectives

The purpose of the course is to present the latest achievements in the term structure modeling for pricing and hedging interest rate derivatives. The course is quantitatively oriented, but financial and practical issues will be greatly discussed.


Course Content Summary

Basic elements of financial mathematics. LIBOR rates and Eurodeposits, FRA, Eurofutures, Swap. Pricing Floating Rate Notes. Yield curve stripping. Caps and Swaptions. Interest rate modelling: the classical approach (Merton, Vasicek, Cox and Ingersoll). Stochastic differential equations, change of numeraire and the market practice: the Black model. Advanced term structure modelling: the Heath-Jarrow-Morton model and the LIBOR market model. Model calibration. Pricing of structured bonds. Modelling the Volatility Smile in the interest rate market. Credit risk issues. Laboratory session (with Excel and/or Matlab) for implementation issues.


Detailed Description of Assessment Methods

The exam can have two different modalities:

  • Two midterm examinations (closed books) are planned. The first follows the initial six lectures and is based on the first part of the course. The second examination will occur at the end of the course and is based on the second part of the course. Grades will be assigned as follows: 40% for each midterm examination plus a take home examination (20%), for which the use of a computer and Excel/Matlab will be required. Groupwork (no more than 5 persons) is allowed for the take home examination. The deadline for the take home examination will be set before the end of the course. If the grade of the midterm is not sufficient (less than 18), you cannot do the second mid-term examination and the take home examination.
  • A Final Examination at the end of the course is planned, and will be based on the entire course. No take home examination is planned.

Textbooks

Lecture Slides available on the E-Learning platform.

L. MARTELLINI, P. PRIAULET, S. PRIAULET, Fixed-Income Securities: Valuation, Risk Management and Portfolio Strategies, John Wiley & Sons, July 7, 2003.

D. BRIGO, F. MERCURIO, Interest Rate Models - Theory and Practice: With Smile, Inflation and Credit, Springer Finance, 2nd ed, 2007.

J. HULL, Options, Futures and Other Derivatives, Pearson Prentice, Hall, sixth edition.

Exam textbooks & Online Articles (check availability at the Library)

Prerequisites

Basic knowledge of derivative instruments like futures and options, their pricing trough the no-arbitrage principle and the Black-Scholes formula as well as a basic knowledgeof stochastic calculus (at the level of the Hull textbook).

Last change 26/05/2009 15:59