(5374INRM6Y) ContentsChanging interest rates constitute one of the major risk sources for banks, insurance companies, and other financial institutions. Modeling the term-structure movements of interest rates is a challenging task. This course gives an introduction to the mathematics of term-structure models in continuous time. It includes practical aspects for fixed-income markets such as day-count conventions, duration of coupon-paying bonds and yield curve construction; arbitrage theory; short-rate models; the Heath-Jarrow-Morton methodology; consistent term-structure parametrizations; affine diffusion processes and option pricing with Fourier transform; LIBOR market models; and credit risk. The focus is on a mathematically straightforward but rigorous development of the theory.PrerequisitesMeasure theory, stochastic processes at the level of the course Measure Theoretic Probability, knowledge of stochastic integrals (key words: continuous time martingales, progressive processes, Girsanov transformation, stochastic differential equations) at the level of Stochastic Integration, knowledge of principles of financial mathematics, for instance at the level of Stochastic Processes for Finance.LiteratureDamir Filipovic, Term-Structure Models, Springer, ISBN 978-3-540-09726-6. Buy it!. The "Contents" of this course are taken from the back cover of the book. See also a list of errata, also available here.Related courseLevy Processes and Stochastic VolatilityLecturersPeter SpreijHomeworkStrict deadlines: the lecture after you have been given the assignment, although serious excuses will always be accepted.ScheduleFall semester: Thursdays, 11:00-13:00, Room D1.162 (Science Park); see the map of Science Park and the travel directions. First lecture on 6 September 2012.ExaminationThe final grade is a combination of the results of the take home assignments and the oral exam. To take the oral exam, you make an appointment for a date that suits your own agenda. If it happens that you'd like to postpone the appointment, just inform us that you want so. This is never a problem! The only important matter is that you take the exam, when you feel ready for it. What do you have to know? The theory, i.e. all important definitions and results (lemma's, theorems, etc.). Optional: you may prepare three theorems together with their proofs. You select your favorite ones! Criteria to consider: they should be interesting, non-trivial and explainable in a reasonably short time span. You will be asked to present one or two of them. I am unavailable in the periods December 7-19, December 21, December 26 - January 8, January 21-23.Programme(last modified: )
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