Term-Structure and Credit Derivatives

Welcome to week 2! This week, we will re-visit the fixed income instruments. So far we have been very comfortable with the notion of a fixed interest rate. In reality, however, interest rate is always evolving over time. Previously, we have seen that the evolution of stock prices can be modeled via multi-period binomial models or the Black Scholes model, but how do we capture the evolution of interest rate? Let us unfold the modeling of interest rate in this week. We will also see that all security derivatives have their equivalents in fixed income domains, such as options, forwards, futures and swaps. If you get stuck on the quizzes, you should post on the Discussions to ask for help. (And if you finish early, I hope you'll go there to help your fellow classmates as well.)

Welcome to week 3! This week, we will start with an important practice in real-life financial engineering - model calibration. The mathematical models are no good if they do not capture the regularities in the financial markets. In order to ensure that our models are useful, we need to search for model parameters that describe the current market conditions. You might find it very helpful to review the optimization methods in the pre-requisite materials of Introduction of Financial Engineering and Risk Management.

Welcome to week 4! This week we will introduce credit derivatives, a very powerful family of derivative products that are partially responsible for the Financial Crisis in 2008. As always, if you get stuck on the quizzes, you should post on the Discussions to ask for help. (And if you finish early, I hope you'll go there to help your fellow classmates as well.)