Interest Rate and Credit Risk Models (1 º Sem 2019/2020)

INTRODUCTION TO FIXED INCOME MARKETS AND INTEREST RATE RISK:
1. Definitions and Notation:
- Zero-coupon bonds;
- From bonds to interest rates;
- Continuous and simple interest rates;
- Coupon-bearing bonds;
- Yield-to-maturity.
2. Term Structures:
- Types of Term Structures;
- Dynamics of the Term Structures;
- Stylized Facts;
- Theories of the Term Structure.
3. Hedging interest rate risk:
- Duration;
- Convexity.
4. Examples of Interest Rate Derivatives.

INTEREST RATE MODELS:
1. Deterministic Interest Rate Models:
- Fitting of Interest Rate Term Structures.
2. Stochastic Interest Rate Models:
- Short-rate models;
- Forward rate models;
- Market Models of Interest Rate: LIBOR and Swap market models.

CREDIT RISK MODELS:
1. Introduction;
2. Structural Models of Credit Risk:
- The Classical (Merton) Approach.
3. Reduced‐form models of Credit Risk;
4. Incomplete Information Models;
5. Default Correlation Issues;
6. Recovery Issues;
7. Calibration Issues.