What You Will Learn :
- Cash collateral and generalization. The cash-collateral discounting. The standard collateral results and their exact application. Extension to generalized definitions of collateral. What is hidden behind OIS discounting (and when it cannot be used)?
- Example of futures and FRA convexity adjustments
- Impact of the choice of stochastic model on the price of vanilla instruments
Interest rate modelling has changed dramatically since the start of the financial crisis in 2007. Most of the derivative models used in academic literature and by practitioners have had to be reviewed in line with new regulatory requirements. One of the main changes is the mandatory variation margin (VM) regime that came into effect on 1st March 2017, which has established the collateralization of derivatives trades as the de facto standard. No reasonable derivative management and modelling can be done without taking the new dynamic and the regulatory aspects into account. Two frameworks have become the standard: the collateral discounting for the VM and the multi-curve framework for interest rate and, in particular, the differentiation between different underlying curves.
The first part of the programme examines in detail the multi-curve and collateral framework foundations and the curve calibrations, including cross-currency aspects. Once the foundations are in place, the interest rate term structure stochastic modelling has also to be re-examined: the existing models have to be adapted and new versions created to take into account the collateral framework, including the stochastic basis between the different curves.
The course will also provide a perspective on the hidden complexity behind the expected changes to the main interest rate benchmarks and the proposal related to LIBOR fall-back.
Participants will review some of the alternative models and the impact of more advanced models on the pricing of vanilla interest rate products (IRS, OIS, FRA, basis swaps, Futures, swaptions, etc.). Practical workshops and examples use production grade open source code (the code is used by banks, CCPs, hedge funds), which participants can take away for immediate application.
All participants will also receive a copy of Dr Marc Henrard’s book “Interest rate modelling in the multi-curve framework: foundations, evolution, and implementation”.
Can’t travel? Don’t want to travel? LFS Live brings the class to you!
- Live interactive training from world renowned practitioners in the comfort of your own home
- Real classroom experience without the inconvenience of travel
- World class teaching from the comfort of your preferred location
Who is this course for?
This "Interest Rate Modelling" course is designed for:
Quants and Financial Engineers