Interest Rate Derivatives, October-December 2021
Department of Statistics and Quantitative Methods, Università di Milano-Bicocca
If you have an e-mail @campus.unimib.it please join the 202110-bicocca channel in the Slack IRD-Bicocca workspace using your first and last name (no nicknames) and a profile picture. Updates and conversations about the course will be posted in the Slack channel.
The course has a practitioner approach, presenting the current market best practices, often not yet documented in textbooks. Lecturers from the street are invited: traders, risk-managers, quants, consultants. The course aims to provide the students with the knowledge usually tested when applying for investment banks in the interest rate derivatives area.
The course is about the valuation of derivative products (linear, plain vanillas, and exotics) and presents the main Interest Rate and Credit models, with special emphasis on rate/credit curve construction and collateralization issues.
- FRA, Futures, and Swaps
- Rate curve bootstrapping in multi-curve regimes
- Black Model and its shifted log-normal variants
- Interest rate volatility: par, forward, no-arbitrage, and SABR model
- Term structure models: equilibrium, no-arbitrage, short rate, and market models
- Caps and Floors, Swaptions, and Bermudan Swaptions
- Credit Default Swaps
- Credit curve bootstrap
- Counterparty risk: clearing, collateralization, and XVA valuation adjustments
- Market risk management: greeks and static replica of structured products
Derivatives, stochastic processes, risk measures
- Slide based lessons
- QuantLibXL (https://www.quantlib.org/quantlibxl) programming assignments using Excel.
Textbooks and Reading Materials
- John Hull, Options, Futures and Other Derivatives, 10th edition
- Paul Wilmott, on Quantitative Finance
English if foreign students are present, else Italian.
Students attending the lessons are asked to solve some assignments. Assignments have a deadline and are not required/allowed for students that did not actively partecipate to the semester didactical activity.
Assignments can be tackled cooperatively by team of students, up to three students. Successful assignments will contribute up to five points to the final grade.
Please send the assignments to the e-mail that will be indicated with subject IRD202110 #1 for the first assignment, IRD202110 #2 for the second assignment, etc.
The final oral exam will be individual.
Lessons’ calendar and material
Interest Rate Basics (slides)
Workshop on Interest Rate Basics
Assignment #1: fill in the Excel spreadsheet (deadline: TBD)
Assignment #2: fill in the Excel spreadsheet (deadline: TBD)
Assignment #3: fill in the Excel spreadsheet (deadline: TBD)
Rate Curves Calibration (slides)
Workshop on Rate Curve Calibration
Assignment #4: fill in the Excel spreadsheet (deadline: TBD)
Black Model (slides)
Guest lecturer: Nicola Moreni
Caps and Floors (slides)
Guest lecturer: Carlo Clerici
Workshop on Caps/Floors
Assignment #5: fill in the Excel spreadsheet (deadline: TBD)
Swaptions, Structured Products, and Hedging (slides)
Workshop on Greeks and Hedging
Assignment #6: fill in the Excel spreadsheet (deadline: TBD)
Trading Obbligazionario (slide)
Guest lecturer: Andrea Bugin
Interest Rate Models (slides)
Workshop on Swaptions and Bermudan Swaption
Assignment #7: fill in the Excel spreadsheet (deadline: TBD)
Credit Derivatives (slides)
Counterparty Risk and Collateral Protection (pdf)
Overview of Central Clearing (pdf)
Workshop on Credit Curve Bootstrapping and Credit Default Swaps
Assignment #8: fill in the Excel spreadsheet (deadline: TBD)
XVAs: Introduction to Valuation Adjustments (slides)
Guest lecturer: Andrea Prampolini
The Reform of Benchmark Interest Rate Indexes and Its Impact on Derivative Pricing (slides-1, slides-2)
Guest lecturers: Maria Cristina Lege and Luigi Cefis