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Damir Filipović
This course gives you an easy introduction to interest rates and related contracts. These include the LIBOR, bonds, forward rate agreements, swaps, interest rate futures, caps, floors, and swaptions. We will learn how to apply the basic tools duration and convexity for managing the interest rate risk of a bond portfolio. We will gain practice in estimating the term structure from market data. We will learn the basic facts from stochastic calculus that will enable you to engineer a large variety of stochastic interest rate models. In this context, we will also review the arbitrage pricing theorem that provides the foundation for pricing financial derivatives. We will also cover the industry standard Black and Bachelier formulas for pricing caps, floors, and swaptions.
Read more
This course gives you an easy introduction to interest rates and related contracts. These include the LIBOR, bonds, forward rate agreements, swaps, interest rate futures, caps, floors, and swaptions. We will learn how to apply the basic tools duration and convexity for managing the interest rate risk of a bond portfolio. We will gain practice in estimating the term structure from market data. We will learn the basic facts from stochastic calculus that will enable you to engineer a large variety of stochastic interest rate models. In this context, we will also review the arbitrage pricing theorem that provides the foundation for pricing financial derivatives. We will also cover the industry standard Black and Bachelier formulas for pricing caps, floors, and swaptions.
Read more
This course gives you an easy introduction to interest rates and related contracts. These include the LIBOR, bonds, forward rate agreements, swaps, interest rate futures, caps, floors, and swaptions. We will learn how to apply the basic tools duration and convexity for managing the interest rate risk of a bond portfolio. We will gain practice in estimating the term structure from market data. We will learn the basic facts from stochastic calculus that will enable you to engineer a large variety of stochastic interest rate models. In this context, we will also review the arbitrage pricing theorem that provides the foundation for pricing financial derivatives. We will also cover the industry standard Black and Bachelier formulas for pricing caps, floors, and swaptions.
At the end of this course you will know how to calibrate an interest rate model to market data and how to price interest rate derivatives.
Register for this course and see more details by visiting:
OpenCourser.com/course/9js5fx/interest
What's inside
Syllabus
Introduction
Interest Rates and Related Contracts
We learn various notions of interest rates and some related contracts. Interest is the rent paid on a loan. A bond is the securitized form of a loan. There exist coupon paying bonds and zero-coupon bonds. The latter are also called discount bonds. Interest rates and bond prices depend on their maturity. The term structure is the function that maps the maturity to the corresponding interest rate or bond price. An important reference rate for many interest rate contracts is the LIBOR (London Interbank Offered Rate). Loans can be borrowed over future time intervals at rates that are agreed upon today. These rates are called forward or futures rates, depending on the type of the agreement. In an interest rate swap, counterparties exchange a stream of fixed-rate payments for a stream of floating-rate payments typically indexed to LIBOR. Duration and convexity are the basic tools for managing the interest rate risk inherent in a bond portfolio. We also review some of the most common market conventions that come along with interest rate market data.
Read more
Syllabus
Introduction
Interest Rates and Related Contracts
We learn various notions of interest rates and some related contracts. Interest is the rent paid on a loan. A bond is the securitized form of a loan. There exist coupon paying bonds and zero-coupon bonds. The latter are also called discount bonds. Interest rates and bond prices depend on their maturity. The term structure is the function that maps the maturity to the corresponding interest rate or bond price. An important reference rate for many interest rate contracts is the LIBOR (London Interbank Offered Rate). Loans can be borrowed over future time intervals at rates that are agreed upon today. These rates are called forward or futures rates, depending on the type of the agreement. In an interest rate swap, counterparties exchange a stream of fixed-rate payments for a stream of floating-rate payments typically indexed to LIBOR. Duration and convexity are the basic tools for managing the interest rate risk inherent in a bond portfolio. We also review some of the most common market conventions that come along with interest rate market data.
Read more
Estimating the Term Structure
We learn how to estimate the term structure from market data. There are two types of methods. Exact methods produce term structures that exactly match the market data. This comes at the cost of somewhat irregular shapes. Smooth methods penalize irregular shapes and trade off exactness of fit versus regularity of the term structure. We will also see what principal component analysis tells us about the basic shapes of the term structure.
Stochastic Models
Models for the evolution of the term structure of interest rates build on stochastic calculus. We start with a crash course in stochastic calculus, which introduces Brownian motion, stochastic integration, and stochastic processes without going into mathematical details. This provides the necessary tools to engineer a large variety of stochastic interest rate models. We then study some of the most prevalent so-called short rate models and Heath-Jarrow-Morton models. We also review the arbitrage pricing theorem from finance that provides the foundation for pricing financial derivatives. As an application we price options on bonds.
Interest Rate Derivatives
We apply what we learnt to price interest rate derivatives. Specifically, we focus on the standard derivatives: interest rate futures, caps and floors, and swaptions. We derive the industry standard Black and Bachelier formulas for cap, floor, and swaption prices. In a case study we learn how to calibrate a stochastic interest rate model to market data.
Final Quiz
Good to know
Good to know
Know what's good ,
what to watch for , and
possible dealbreakers
Explores interest rates and related contracts, which are essential topics in finance
Taught by Damir Filipović, a recognized expert in interest rate modeling
Develops essential tools, such as duration and convexity, for managing interest rate risk
Teaches practical applications of interest rate derivatives, including caps, floors, and swaptions
Provides a solid foundation for understanding and pricing interest rate derivatives
Core audience includes finance professionals, students specializing in finance, and individuals seeking knowledge in interest rate derivatives
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Reviews summary
Demanding, advanced statistics course
Learners say that this advanced course in interest rate models is difficult, but worthwhile. It covers topics such as lectures, exams, quizzes, homework assignments, instructors, deadlines, and certificates. The lectures are concise and demanding, and the assignments require dedication and a strong background in mathematics and programming. However, those who complete the course say that they learn a lot and gain valuable skills. Overall, this course is a great choice for learners who are interested in quantitative finance and are willing to put in the effort to succeed.
Knowledgeable and engaging
"The most difficult course in Coursera. Still, it is totally worth it."
"Probably the most rigorous course on Coursera. Requires solid effort worthy of a graduate course. Kudos to the professors, TAs for putting together the assignments."
"A class of great quality provided by Damir Filipović and enable to deep dive into interest rates related contracts and models that enable to value them. The rythm of the voice is really good and enables the learner to follow. The slides are of great support for the concepts and the exercises are quite good.
Thanks Damir, it was good to see you again!"
Time-consuming, but educational
"The exercises take a lot of time to complete and there is limited support available in the forums."
"However after completing the course one should be confident to explore more complicated interest rate models used in real work."
"Very demanding and useful course. I learnt a lot!! It's definitely the best class that can be found on the stochastic short rate models!!!"
Advanced and relevant
"Advanced Course, require dedication, reasearch and solid mathematical and programming background."
"This is an advanced course for people in quantitative finance field ONLY. Those who lack related background may find it very difficult but it is a good course for people in quant field."
"Difficult but very interesting course. Give a clear introduction to quantitative finance but on the other hand, it does not give enough references, link to article to go deeper into subject"
Challenging, but worthwhile
"Difficult but worthwhile！"
"Challenging, but extremely worth the effort."
"It is a fantastic course. I love it."
Heavy, but manageable
"The time given to finish it is under-estimated."
"With that being said, I learned a lot from the lectures and managed to complete every quiz."
"Time commitment to the course grows greatly starting with Week 3, and by the final quiz it can feel quite overwhelming and frustrating due to the amount of material covered in each week and the high difficulty of some of the exercises."
Activities
Be better prepared
before
your course. Deepen your understanding
during
and
after
it. Supplement your coursework and achieve mastery of the topics covered
in Interest Rate Models with these
activities:
Review Hull's Options, Futures, and Derivatives
Show steps
Review the basics of financial derivatives to strengthen foundational understanding before the course begins.
View
Options, Futures, and Other Derivatives
on Amazon
Show steps
-
Read through chapters 1-3 to grasp the fundamental concepts of financial derivatives.
-
Solve the end-of-chapter problems to reinforce your understanding of key topics.
Follow Coursera's Introduction to Financial Markets tutorial
Show steps
Supplement your learning by exploring Coursera's tutorial on financial markets, covering concepts related to interest rates.
Browse courses on
Financial Markets
Show steps
-
Enroll in the 'Introduction to Financial Markets' tutorial on Coursera.
-
Complete all modules and quizzes to gain a comprehensive understanding of financial markets.
Join a study group to discuss course concepts
Show steps
Enhance your learning by engaging with peers in a study group, discussing course concepts, solving problems, and sharing insights.
Show steps
-
Identify classmates or fellow students interested in forming a study group.
-
Establish regular meeting times and decide on topics to cover.
-
Take turns leading discussions, presenting concepts, and facilitating problem-solving.
Five other activities
Expand to see all activities and additional details
Show all eight activities
Solve practice problems on interest rate calculations
Show steps
Enhance your understanding of interest rate calculations by solving practice problems, reinforcing your grasp of the concepts.
Browse courses on
Interest Rates
Show steps
-
Gather practice problems on interest rate calculations from textbooks or online resources.
-
Dedicate time to solving these problems regularly, checking your answers for accuracy.
Create a visual representation of the term structure
Show steps
Solidify your understanding of the term structure by creating a visual representation, such as a graph or diagram that illustrates its shape and movements.
Browse courses on
Term Structure
Show steps
-
Gather data on interest rates for different maturities.
-
Plot the data on a graph, with the y-axis representing interest rates and the x-axis representing maturities.
-
Analyze the shape of the term structure and identify any patterns or trends.
Attend a workshop on stochastic calculus
Show steps
Expand your knowledge by attending a workshop on stochastic calculus, a foundational topic for modeling interest rates and other financial variables.
Show steps
-
Research workshops on stochastic calculus in your area or online.
-
Select a workshop that aligns with your schedule and learning goals.
-
Attend the workshop, actively participate in discussions, and take notes for future reference.
Contribute to the QuantLib open-source library
Show steps
Apply your understanding of interest rate modeling by contributing to QuantLib, an open-source library for quantitative finance.
Browse courses on
Quantitative Finance
Show steps
-
Familiarize yourself with the QuantLib library and its documentation.
-
Identify an area where you can make a meaningful contribution.
-
Write code, test your changes, and submit a pull request to the QuantLib repository.
Volunteer as a financial analyst intern
Show steps
Gain practical experience in interest rate risk management by volunteering as a financial analyst intern at a financial institution.
Browse courses on
Financial Analysis
Show steps
-
Research financial institutions that offer internship programs in financial analysis.
-
Apply for internships that align with your interests and skills.
-
During the internship, actively participate in projects related to interest rate risk management, such as stress testing and portfolio optimization.
Review Hull's Options, Futures, and Derivatives
Show steps
Review the basics of financial derivatives to strengthen foundational understanding before the course begins.
View
Options, Futures, and Other Derivatives
on Amazon
Show steps
Show steps
Show steps
- Read through chapters 1-3 to grasp the fundamental concepts of financial derivatives.
- Solve the end-of-chapter problems to reinforce your understanding of key topics.
Follow Coursera's Introduction to Financial Markets tutorial
Show steps
Supplement your learning by exploring Coursera's tutorial on financial markets, covering concepts related to interest rates.
Browse courses on
Financial Markets
Show steps
Show steps
Show steps
- Enroll in the 'Introduction to Financial Markets' tutorial on Coursera.
- Complete all modules and quizzes to gain a comprehensive understanding of financial markets.
Join a study group to discuss course concepts
Show steps
Enhance your learning by engaging with peers in a study group, discussing course concepts, solving problems, and sharing insights.
Show steps
Show steps
Show steps
- Identify classmates or fellow students interested in forming a study group.
- Establish regular meeting times and decide on topics to cover.
- Take turns leading discussions, presenting concepts, and facilitating problem-solving.
Five other activities
Expand to see all activities and additional details
Show all eight activities
Solve practice problems on interest rate calculations
Show steps
Enhance your understanding of interest rate calculations by solving practice problems, reinforcing your grasp of the concepts.
Browse courses on
Interest Rates
Show steps
Show steps
Show steps
- Gather practice problems on interest rate calculations from textbooks or online resources.
- Dedicate time to solving these problems regularly, checking your answers for accuracy.
Create a visual representation of the term structure
Show steps
Solidify your understanding of the term structure by creating a visual representation, such as a graph or diagram that illustrates its shape and movements.
Browse courses on
Term Structure
Show steps
Show steps
Show steps
- Gather data on interest rates for different maturities.
- Plot the data on a graph, with the y-axis representing interest rates and the x-axis representing maturities.
- Analyze the shape of the term structure and identify any patterns or trends.
Attend a workshop on stochastic calculus
Show steps
Expand your knowledge by attending a workshop on stochastic calculus, a foundational topic for modeling interest rates and other financial variables.
Show steps
Show steps
Show steps
- Research workshops on stochastic calculus in your area or online.
- Select a workshop that aligns with your schedule and learning goals.
- Attend the workshop, actively participate in discussions, and take notes for future reference.
Contribute to the QuantLib open-source library
Show steps
Apply your understanding of interest rate modeling by contributing to QuantLib, an open-source library for quantitative finance.
Browse courses on
Quantitative Finance
Show steps
Show steps
Show steps
- Familiarize yourself with the QuantLib library and its documentation.
- Identify an area where you can make a meaningful contribution.
- Write code, test your changes, and submit a pull request to the QuantLib repository.
Volunteer as a financial analyst intern
Show steps
Gain practical experience in interest rate risk management by volunteering as a financial analyst intern at a financial institution.
Browse courses on
Financial Analysis
Show steps
Show steps
Show steps
- Research financial institutions that offer internship programs in financial analysis.
- Apply for internships that align with your interests and skills.
- During the internship, actively participate in projects related to interest rate risk management, such as stress testing and portfolio optimization.
Career center
Learners who complete Interest Rate Models will develop knowledge and skills
that may be useful to these careers:
Financial Analyst
Financial Analyst
A Financial Analyst will be concerned with the prices of financial instruments. In this course, you will learn how these prices change over time according to interest rates and their derivatives. This pattern of change is called the term structure of interest rates. You will also learn the mathematical tools and the industry standard formulas for estimating this term structure from the market data and for pricing interest rate derivatives.
Portfolio Manager
Portfolio Manager
Portfolio Managers will be concerned about the risk inherent in their portfolio of investments. In this course, you will learn basic tools for managing the interest rate risk of a bond portfolio, namely duration and convexity.
Risk Analyst
Risk Analyst
A Risk Analyst is involved in valuing and hedging portfolios of financial assets. In this course, you will learn how to calibrate a stochastic interest rate model to market data, which is an important part of risk analysis.
Quantitative Analyst
Quantitative Analyst
A Quantitative Analyst needs a background in stochastic calculus to develop financial risk models. In this course, you will learn how to price options on bonds using the arbitrage pricing theorem and stochastic models.
Derivatives Trader
Derivatives Trader
A Derivatives Trader needs to understand the factors that affect the prices of derivative products, including interest rate derivatives. In this course, you will learn how to price interest rate derivatives, which may come up in your day-to-day work.
Actuary
Actuary
An Actuary analyzes financial risk and uncertainty. In this course, you will learn the stochastic calculus that enables you to engineer a large variety of stochastic interest rate models. This will help you to develop better models to value insurance policies.
Financial Risk Manager
Financial Risk Manager
A Financial Risk Manager needs to understand the risk associated with different financial instruments. In this course, you will learn how to model interest rate risk and how to hedge it.
Investment Analyst
Investment Analyst
An Investment Analyst advises clients on investment strategy. In this course, you will learn how to price bonds. This knowledge will help you to understand and assess different kinds of investments.
Credit Analyst
Credit Analyst
A Credit Analyst assesses the creditworthiness of borrowers. In this course, you will learn the interest rate market conventions that come along with interest rate market data. This knowledge will help you to understand and assess different kinds of debt.
Data Scientist
Data Scientist
A Data Scientist uses data to solve problems. In this course, you will learn how to estimate the term structure from market data. This knowledge will help you to develop better models to solve problems in a variety of industries.
Consultant
Consultant
A Consultant provides advice to businesses. In this course, you will learn about the different types of interest rate contracts and their applications. This knowledge will help you to advise businesses on how to manage their interest rate risk.
Economist
Economist
An Economist studies the economy. In this course, you will learn the term structure of interest rates. This knowledge will help you to understand how interest rates affect the economy.
Professor
Professor
A Professor teaches and conducts research. In this course, you will learn the stochastic calculus that enables you to engineer a large variety of stochastic interest rate models. This knowledge will help you to develop better models to teach your students and to conduct your research.
Statistician
Statistician
A Statistician collects, analyzes, and interprets data. In this course, you will learn the mathematical tools and the industry standard formulas for estimating the term structure from the market data. This knowledge will help you to develop better statistical models.
Software Engineer
Software Engineer
A Software Engineer designs, develops, and tests software applications. In this course, you will learn the stochastic calculus that enables you to engineer a large variety of stochastic interest rate models. While this course does not teach software engineering, the stochastic calculus you will learn may be applied to the development of financial software.
For more career information including salaries, visit:
OpenCourser.com/course/9js5fx/interest
Reading list
We've selected 28 books
that we think will supplement your
learning. Use these to
develop background knowledge, enrich your coursework, and gain a
deeper understanding of the topics covered in
Interest Rate Models.
An introductory text on interest rate modeling by the instructor of this course, the book serves as a valuable supplement to the course's lecture notes.
Provides an in-depth treatment of stochastic calculus, the core mathematical tool underlying interest rate modeling.
Comprehensive reference on fixed income securities. It covers the different types of fixed income securities, their features, and how they are traded. The book also discusses the risks and rewards of investing in fixed income securities.
Provides a rigorous mathematical treatment of the theory of interest. It classic in the field and is used as a textbook at many academic institutions.
Provides a comprehensive overview of financial engineering, including interest rate modeling.
Provides a detailed overview of the pricing and risk management of interest rate derivatives.
Provides a practical guide to interest rate risk management.
Focuses on the valuation of interest rate derivatives, making it a valuable resource for those seeking to apply the concepts covered in this course to their own trading strategies.
Provides a comprehensive overview of the financial risk management profession, with a focus on the practical aspects of risk management. It would be a valuable resource for students who want to learn more about the different techniques that can be used to manage financial risk.
Provides a gentle introduction to stochastic calculus, with a focus on applications in finance. It would be a valuable resource for students who want to learn more about the mathematical foundations of stochastic modeling in finance.
Provides a comprehensive overview of machine learning techniques, with a focus on applications in asset management. It would be a valuable resource for students who want to learn more about the different techniques that can be used to build machine learning models for financial data.
Provides a comprehensive introduction to mathematical interest theory.
Save
Provides a practical guide to fixed income analytics. It covers the different types of fixed income securities, their features, and how they are traded. The book also discusses the risks and rewards of investing in fixed income securities.
Provides a comprehensive overview of options, futures, and other derivatives. It would be a valuable resource for students who want to learn more about the pricing and hedging of these instruments.
Provides a comprehensive overview of fixed income analytics, with a focus on the practical aspects of fixed income analysis. It would be a valuable resource for students who want to learn more about the different techniques that can be used to analyze fixed income securities.
Save
Provides an introduction to financial calculus, with a focus on derivative pricing.
Provides a comprehensive overview of interest rate swaps and other derivatives. It covers the different types of interest rate swaps, their features, and how they are traded. The book also discusses the risks and rewards of using interest rate swaps.
Offers a general overview of financial risk management techniques, including interest rate risk management, providing a broader context for the topics covered in this course.
Provides a comprehensive analysis of fixed income securities, especially bonds, which will aid students in understanding the interest rates' impact on bond prices.
Offers a managerial perspective on interest rate risk and its mitigation techniques, broadening students' understanding beyond theoretical models.
Provides a comprehensive overview of the theory of interest. It covers the different types of interest rates, their relationships, and how they are used in financial markets. The book also discusses the risks and rewards of investing in interest-bearing securities.
Provides a comprehensive overview of continuous-time stochastic calculus. It covers the basics of continuous-time stochastic calculus, including Brownian motion, stochastic integration, and stochastic processes. The book also discusses the applications of continuous-time stochastic calculus to financial modeling.
Provides a comprehensive overview of stochastic calculus. It covers the basics of stochastic calculus, including Brownian motion, stochastic integration, and stochastic processes. The book also discusses the applications of stochastic calculus to financial modeling.
While not directly related to interest rate modeling, this book provides insights into the modeling of another important risk factor in finance, complementing the course's focus on interest rate risk.
Provides a comprehensive overview of interest rate risk management. It covers the different types of interest rate risk, their measurement, and their management. The book also discusses the risks and rewards of using interest rate derivatives to manage interest rate risk.
Comprehensive handbook on fixed income. It covers the different types of fixed income securities, their features, and how they are traded. The book also discusses the risks and rewards of investing in fixed income securities.
Comprehensive handbook on interest rate derivatives. It covers the different types of interest rate derivatives, their features, and how they are traded. The book also discusses the risks and rewards of using interest rate derivatives.
Provides a comprehensive overview of the theory of interest. It covers the different types of interest rates, their relationships, and how they are used in financial markets. The book also discusses the risks and rewards of investing in interest-bearing securities.
For more information about how these books relate to this course, visit:
OpenCourser.com/course/9js5fx/interest
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Effort
5 weeks of study, 6 hours per week
Level
Advanced
Via
Coursera
Institution
École Polytechnique Fédérale de Lausanne2
Instructor
Damir Filipović
Language
English
Transcripts
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Good to know
Explores interest rates and related contracts, which are essential topics in finance
Taught by Damir Filipović, a recognized expert in interest rate modeling
Develops essential tools, such as duration and convexity, for managing interest rate risk
Teaches practical applications of interest rate derivatives, including caps, floors, and swaptions
Provides a solid foundation for understanding and pricing interest rate derivatives
Core audience includes finance professionals, students specializing in finance, and individuals seeking knowledge in interest rate derivatives
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