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Interest Rate Simulations: Pricing securities, forecasting monetary policy

In addition to the Interest Rate Forecasting workshop now scheduled for 28th and 29th December, our first downloadable pdf edition of the Interest Rate Modeling course is now on sale on the online finance course store. The course was written specifically to support the interest rate modeling excel spreadsheets for BDT, HJM and CIR introduced earlier.

Here is the table of content for the pdf version of the interest rate modeling course.

INTEREST RATE MODELLING    

INTRODUCTION    

Equilibrium vs. No-Arbitrage models    
One- factor vs. multiple-factor models    

BASIC CONCEPTS    

Cash flows    
Discounting Cash flows   
Spot Rates    
Forward Rates    
Short rates    
Yield to Maturity    
Term structure of interest rates    

DERIVATION OF THE ZERO AND FORWARD CURVES    

Defining the Par Term Structure    

Step 1: Select an appropriate term structure    
Step 2: Extending the term structure    
Step 3: Creating a default term structure    

Deriving the Zero Curve    
Step 1: Develop the cash flows matrix    
Step 2: Developing the discounted value of cash flows matrix and the zero curve    

Deriving the Forward Curve    

Step 1: Deriving forward rates    

BUILDING INTEREST RATE MONTE CARLO (MC) SIMULATORS IN EXCEL    

What is a Monte Carlo Simulator    
The process or generator function for the MC simulator – a first pass    
Building your first Monte Carlo (MC) Simulator model    
Extending MC simulation models to Currencies & Commodities    
MC Simulations models – Understanding drift and diffusion and volatility drag    
The Zero Drift, Zero Diffusion case    
The Unit Drift, Zero Diffusion case    
The Zero Drift, Unit Diffusion case    
The Unit Drift, Unit Diffusion case    
Understanding Volatility drag or ½ sigma2 (squared)    
Linking Monte Carlo Simulation with Binomial Trees and the Black Scholes model    
Simulating Interest rates using CIR and HJM    

ONE-FACTOR MODELS    

Cox Ingersoll Ross (CIR) Model    

Estimating Parameters and Calibrating the CIR Model    
Simulating future short term interest rates under the CIR Model    
Modelling longer term rates    

Black Derman Toy (BDT) Model    

How to Construct a BDT Model in Excel    

MULTIPLE FACTOR MODELS    

PCA Analysis    

The PCA Process- Overview    
How to conduct a Principal Component Analysis in Excel    

HJM Model    

Structure of an HJM Interest Rate Model    
How to construct an HJM interest Rate Model in Excel    

MONTE CARLO SIMULATION APPLICATION: FORECASTING THE MONETARY POLICY RATE DECISION    

Process    

Results    

Step 1: Simulating Crude Oil Prices    
Step 2: Calculating Imports    
Step 3: Simulating Exports    
Step 4: Simulating Remittances    
Step 5: Calculating the change in Net Foreign Assets (NFA)    
Step 6: Calculating M2 and M2 Growth    
Step 7: Forecasting Core Inflation    
Step 8: Calculating the cut in the policy discount rate    

BIBLIOGRAPHY

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