École Polytechnique Fédérale de Lausanne

Interest Rate Models

Taught in English

Some content may not be translated

34,192 already enrolled

Course

Gain insight into a topic and learn the fundamentals

Damir Filipović

Instructor: Damir Filipović

4.5

(184 reviews)

Advanced level
Designed for those already in the industry
29 hours to complete
3 weeks at 9 hours a week
Flexible schedule
Learn at your own pace

Details to know

Shareable certificate

Add to your LinkedIn profile

Assessments

22 quizzes

See how employees at top companies are mastering in-demand skills

Placeholder
Placeholder

Earn a career certificate

Add this credential to your LinkedIn profile, resume, or CV

Share it on social media and in your performance review

Placeholder

There are 6 modules in this course

What's included

1 video5 readings

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.

What's included

5 videos2 readings6 quizzes

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.

What's included

4 videos5 quizzes

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.

What's included

4 videos1 reading5 quizzes

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.

What's included

4 videos5 quizzes

What's included

1 reading1 quiz

Instructor

Instructor ratings
4.5 (37 ratings)
Damir Filipović
École Polytechnique Fédérale de Lausanne
1 Course34,192 learners

Recommended if you're interested in Finance

Why people choose Coursera for their career

Felipe M.
Learner since 2018
"To be able to take courses at my own pace and rhythm has been an amazing experience. I can learn whenever it fits my schedule and mood."
Jennifer J.
Learner since 2020
"I directly applied the concepts and skills I learned from my courses to an exciting new project at work."
Larry W.
Learner since 2021
"When I need courses on topics that my university doesn't offer, Coursera is one of the best places to go."
Chaitanya A.
"Learning isn't just about being better at your job: it's so much more than that. Coursera allows me to learn without limits."

Learner reviews

Showing 3 of 184

4.5

184 reviews

  • 5 stars

    76.08%

  • 4 stars

    11.95%

  • 3 stars

    4.34%

  • 2 stars

    2.17%

  • 1 star

    5.43%

JZ
4

Reviewed on Feb 14, 2022

MB
5

Reviewed on Jan 30, 2017

MB
4

Reviewed on Oct 10, 2019

New to Finance? Start here.

Placeholder

Open new doors with Coursera Plus

Unlimited access to 7,000+ world-class courses, hands-on projects, and job-ready certificate programs - all included in your subscription

Advance your career with an online degree

Earn a degree from world-class universities - 100% online

Join over 3,400 global companies that choose Coursera for Business

Upskill your employees to excel in the digital economy

Frequently asked questions