MA416 Half Unit
The Foundations of Interest Rate and Credit Risk Theory
This information is for the 2025/26 session.
Course Convenor
Prof Mihail Zervos
Availability
This course is compulsory on the MSc in Financial Mathematics. This course is available on the MSc in Quantitative Methods for Risk Management, MSc in Statistics (Financial Statistics) and MSc in Statistics (Financial Statistics) (Research). This course is available with permission as an outside option to students on other programmes where regulations permit.
Requisites
Pre-requisites:
Students must have completed ST409 before taking this course.
Course content
This course studies the mathematical foundations of interest rate and credit risk theory. The course starts with a development of the multi-dimensional Black & Scholes theory with stochastic market data. This is then used to show how discount bond dynamics modelling can be approached by (a) the modelling of the short-rate process and the market price of risk, which underlies the family of short-rate models, or (b) the modelling of the market price of risk and the discount bond volatility structure, which gives rise to the Heath-Jarrow-Morton (HJM) framework. The course then expands on the theory of interest rate market models and credit risk.
Teaching
10 hours of seminars and 20 hours of lectures in the Winter Term.
Formative assessment
The main formative assessment will be in the form of weekly exercise sets, which will be discussed in the seminars. Some of the topics of these will be similar to what is expected in the summative assessment (exam).
Indicative reading
T R Bielecki and M Rutkowski, Credit Risk Modeling, Valuation and Hedging, Springer; M Musiela and M Rutkowski, Martingale Methods in Financial Engineering, Springer; R Rebonato, Modern Pricing of Interest-rate Derivatives: The LIBOR Market Model and Beyond, Princeton.
Assessment
Exam (100%), duration: 120 Minutes in the Spring exam period
Key facts
Department: Mathematics
Course Study Period: Winter Term
Unit value: Half unit
FHEQ Level: Level 7
CEFR Level: Null
Total students 2024/25: 40
Average class size 2024/25: 40
Controlled access 2024/25: NoCourse selection videos
Some departments have produced short videos to introduce their courses. Please refer to the course selection videos index page for further information.
Personal development skills
- Self-management
- Problem solving
- Application of information skills
- Communication
- Application of numeracy skills
- Specialist skills