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Interest Rate Modelling: Modern Interest Rates with Collateral, Funding and Credit Risk (Part 1)

 
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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 

Course Running Time: 6 Hours 30 Minutes
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

Academic level

Topic

Finance

Published date

19 February 2014

Price

£199.00

Presenter Bio

Marco Bianchetti

Marco Bianchetti joined the Market Risk Management area of Intesa Sanpaolo in 2008. His work covers derivatives’ pricing and risk management across all asset classes, with a focus on new products development, model validation, model risk management, interest rate modelling, funding and counterparty risk. Previously he worked for 8 years in the front office Financial Engineering area of Banca Caboto (now Banca IMI), developing pricing models and applications for interest rate and inflation trading desks. He is a speaker at international conferences and trainings in quantitative finance. He holds a M.Sc. in theoretical nuclear physics and a Ph.D. in theoretical condensed matter physics.