Prof Mihail Zervos

This course is compulsory on the MSc in Financial Mathematics. This course is available on the MSc in Financial Statistics, MSc in Financial Statistics (Research) and MSc in Quantitative Methods for Risk Management. This course is available with permission as an outside option to students on other programmes where regulations permit.

Pre-requisites:

Students must have completed ST409 before taking this course.

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 can be modelled in the context of short-rate models as well as in the context of the Heath-Jarrow-Morton (HJM) framework. The course then expands on the theory of intensity-based credit risk modelling.

10 hours of seminars and 20 hours of lectures in the Winter Term.

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).

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.

Exam (100%), duration: 120 Minutes in the Spring exam period.