Quantitative Finance and Insurance

 The purpose of the course is to discuss:

1) how to construct and manage a  fixed-income portfolio

2) how to model the term structure of interest rates

3) how to price and hedge interest rate derivatives

Fundamental mathematical tecniques will be presented. Practical applications will be greatly discussed.

At the end of the course, the student is expected to be capable of:

• understanding fixed-income markets and instruments
• evaluating the impact of the determinants of interest rate movements
• constructing and maintaining a fixed-income portfolio, and assessing its credit risk
• constructing interest rate curves from marked data
• pricing and hedging interest rate derivatives
• applying the basic course knowledge to theoretical issues and concrete market situations
• approaching the subject in a critical manner through the examination of different approaches in the literature and practice of the fixed-income market
• having gained communication skills, through the debate during the lectures
• having gained learning abilities, through a variety of learning tools (teaching material, class discussion, lab sessions, homework and tests)

  Lectures, class discussion and lab sessions.

 Coursework corresponding to 32 points. The coursework will have 2 parts of equal weight (16 points on part 1 and 16 points on part 2). 

 

 

Part 1 [24 hours] (Martina)

BOND ANALYSIS:
- Bond definition and characteristics
- Bond types
- Bond structure and priority
- Bond valuation
- Bond Return Measures (CY, YTM, YTC)
- Yield curve
- The effect of interest rate changes on bond prices
- Duration
- Determinants of Interest Rates
- Bond ratings and CRAs
- Bond spread
- Bond Yields
- Government Bonds

PORTFOLIO MANAGEMENT:
- Portfolio competition and market/strategy comments

Part 2 [24 hours] (Marena)

FIXED INCOME DERIVATIVES:
- Fixed-income derivatives
- Bootstrap of the interest rate curve
- Interest rate models

Material and lecture notes will be made available via Moodle.

References for FIXED INCOME DERIVATIVES:
Brigo, D., Mercurio, F., Interest Rate Models: Theory and Practice With Smile, Inflation and Credit, Springer, 2006.
Kienitz, J., Interest Rate Derivatives Explained, Palgrave Macmillan, 2014.

 

 The course should be taken together with "Derivatives".  Students who cannot attend classes are kindly requested to contact instructors at the beginning of the course.