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