Interest Rate Derivatives Course

Interest Rate Derivatives, October-December 2020

Department of Statistics and Quantitative Methods, Università di Milano-Bicocca

Because of COVID-19 the course will be streaming only.

e-learning: https://elearning.unimib.it/course/view.php?id=31565

If you have an e-mail @campus.unimib.it please join the 202010-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.

Learning objectives

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

Prerequisites

Derivatives, stochastic processes, risk measures

Teaching method

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

Teaching language

English if foreign students are present, else Italian.

Assessment

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 IRD202010 #1 for the first assignment, IRD202010 #2 for the second assignment, etc.

The final oral exam will be individual.

Schedule

Workshops are with Paolo Mazzocchi, assistant lecturer (material).

2020-10-06 Tuesday 14:30-16:30
Interest Rate Basics (slides)
2020-10-09 Friday 12:30-14:30
Interest Rate Basics (slides)
Rate Curves Calibration (slides)
2020-10-13 Tuesday 14:30-16:30
Workshop on Interest Rate Basics
Assignment #1: fill in the Excel spreadsheet (deadline: 2020-10-20)
Assignment #2: fill in the Excel spreadsheet (deadline: 2020-10-20)
2020-10-16 Friday 12:30-14:30
Workshop on Interest Rate Basics
Assignment #3: fill in the Excel spreadsheet (deadline: 2020-10-30)
Rate Curves Calibration (slides)
2020-10-20 Tuesday 14:30-16:30
Workshop on Rate Curve Calibration
Assignment #4: fill in the Excel spreadsheet (deadline: 2020-11-06)
2020-10-30 Friday 12:30-14:30
Black Model (slides)
2020-11-03 Tuesday 14:30-16:30
Volatility (slides)
Guest lecturer: Nicola Moreni
2020-11-06 Friday 12:30-14:30
Caps and Floors (slides)
Guest lecturer: Carlo Clerici
2020-11-10 Tuesday 14:30-16:30
Swaptions, Structured Products, and Hedging (slides)
2020-11-13 Friday 12:30-14:30
Workshop on Greeks and Hedging and Caps/Floors
Assignment #5: fill in the Excel spreadsheet (deadline: 2020-12-04)
Assignment #6: fill in the Excel spreadsheet (deadline: 2020-12-04)
2020-11-17 Tuesday 14:30-16:30
Trading Obbligazionario (slide)
Guest lecturer: Andrea Bugin
2020-12-01 Tuesday 14:30-16:30
Q&A on Plain Vanilla Volatility Products and Greeks
with Carlo Clerici, Paolo Mazzocchi, and Nicola Moreni
2020-12-04 Friday 12:30-14:30
Interest Rate Models (slides)
Workshop on Swaptions and Bermudan Swaption
Assignment #7: fill in the Excel spreadsheet (deadline: 2020-12-11)
2020-12-11 Friday 12:30-14:30
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: 2020-12-22)
2020-12-15 Tuesday 14:30-16:30
XVAs: Introduction to Valuation Adjustments (slides)
Guest lecturer: Andrea Prampolini
2020-12-18 Friday 12:30-14:30
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
2020-12-22 Tuesday 14:30-16:30
Conclusions and final Q&A

Ferdinando Ametrano