Modern Interest Rates with Collateral, Funding and Credit Risk (Part 1) 
Presenter: Marco Bianchetti: Head of Financial Modelling & Validation, Market Risk Management, Derivatives Pricing, Intesa Sanpaolo
Video Lectures
The Interest Rate Market after the Credit Crunch (Running Time: 2:06:59)
Modern Interest Rate Modelling (Running Time: 1:20:31)
Modern Pricing of Interest Rate Derivatives (Running Time: 1:25:51)
The Modern Multiple Curve Framework (Running Time: 1:31:01)
The Interest Rate Market after the Credit Crunch (Running Time: 2:06:59)
- Back to basics: Libor/Euribor/Eonia/Repo interest rates
- How the market changed: stylized facts and overview of market data
- Symmetry breaking and market segmentation after the credit crunch
- Counterparty risk and collateral
- From Libor to OIS discounting, how the market has changed
Modern Interest Rate Modelling (Running Time: 1:20:31)
Basic assumptions and notation
- Dimensions and units
- Interest rate definitions and conventions
- Financial contract description
Theoretical framework
- Short rate, bank account and risk neutral measure
- Feynman-Kac theorem
- Zero Coupon Bond and forward measure
- Change of measure, Girsanov theorem
- Replication
Funding and funding value adjustment (FVA)
- Black-Scholes-Merton, modern perspective
- Multiple funding sources
- Collateral: discrete margination
- Perfect collateral
- Perfect collateral for derivative and hedge
- Perfect collateral, dividends, repo
- Partial collateral
- Perfect collateral, stochastic rates
- Multiple currency
Modern Pricing of Interest Rate Derivatives (Running Time: 1:25:51)
- Interest rate derivatives: modeling approaches
- A simple credit model
- Deposit
- Forward rates
- Forward Rate Agreement
- Futures
- Instantaneous forward rate
- Swap
- Forward swap measure
- Overnight Indexed Swap
- Bond
- Basis Swap
- Cap/Floor
- Swaption
- Constant Maturity Swap
- CMS Cap/Floor
- CMS Spread Option
- Beyond the Black’s model
- SABR revisited
The Modern Multiple Curve Framework (Running Time: 1:31:01)
- Modern multiple curve market practice
- Multiple curves construction
- Bootstrapping instruments
- Market data
- Bootstrapping formulas
- Interpolation
- Negative rates
- Exogenous bootstrapping
- Turn of year effect
- Multiple curves, multiple deltas, multiple hedging
- Performance
- Sanity checks
- Multiple volatility cubes
Conclusions
Summary:
Marco Bianchetti lays out the agenda for Part 1 of the presentation on Modern Interest Rates.
Part 2 will be presented by Massimo Morini.
Session One
1. The Market after the Credit Crunch
Session Two
2. Modern Interest Rate Modelling
Session Three
2. Modern Interest Rate Modelling (continued)
3. Modern Pricing of Interest Rate Derivatives
Session Four
3. Modern Pricing of Interest Rate Derivatives (continued)
4. The Modern Multiple Curve Framework