Rate Models

Professor: Naila Hayek, Pantheon-Assas University.

Outline:

1. Definitions

• Short rate (spot) ;
• Forward rate) ;
• Swap rate.

2. Short rate models

• Valuation of an obligation
• Vasicek's model
• The Cox-Ingersoll-Ross (CIR) model
• The model of Hull and White (or extended Vasicek)

3. Multifactorial models

• The Vasicek model with 2 factors
• The Heath-Jarrow-Morton Framework (HJM)

4. Market models (BGM or Libor Forward)

Bibliography:

• Brigo, D., Mercurio, F. (2005) : Interest Rate Models-theory and Practice : With Smile, Inflation and Credit, 2e édition, Springer-Verlag Berlin and Heidelberg ;
• Lamberton D., Lapayre B. (1991) : Introduction au calcul stochastique appliqué à la finance, Ellipses ;
• Hull J. (2017) : , Pearson, 10e édition.