Financial Engineering Course: Lecture 4/14, part 2/2, (Yield Curve Dynamics under Short Rate)

Financial Engineering: Interest Rates and xVA
Lecture 4- part 2/2, Yield Curve Dynamics under Short Rate
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This course is based on the book:
"Mathematical Modeling and Computation in Finance: With Exercises and Python and MATLAB Computer Codes", by C.W. Oosterlee and L.A. Grzelak, World Scientific Publishing, 2019.
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0:00 Introduction
1:13 Limitations of the 1-Factor Model and Yield Curve Dynamics
23:09 Gaussian 2-Factor Model
53:03 Summary of the Lecture + Homework
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CONTENT OF THIS COURSE:
Lecture 1- Introduction and Overview of the Course
Lecture 2- Understanding of Filtrations and Measures
Lecture 3- The HJM Framework
*** Lecture 4- Yield Curve Dynamics under Short Rate
Lecture 05- Interest Rate Products
Lecture 06- Construction of Yield Curve and Multi-Curves
Lecture 07- Pricing of Swaptions and Negative Interest Rates
Lecture 08- Mortgages and Prepayments
Lecture 09- Hybrid Models and Stochastic Interest Rates
Lecture 10- Foreign Exchange (FX) and Inflation
Lecture 11- Market Models, Convexity Adjustments and Beyond
Lecture 12- Valuation Adjustments- xVA (CVA, BCVA and FVA)
Lecture 13- Historical VaR, SVaR and Expected Shortfall
Lecture 14- Summary of the Course
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#ComputationalFinance, #Python, #QuantitativeFinance, #FinancialMathematics, #MonteCarloSimulation, #OptionPricing, #Finance, #DerivativePricing, #BlackScholes, #FreeCourse, #FinancialEngineering, #Hedging, #Simulation, #Options, #xVA
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[ABi-jvxu]

Thank you infinitely for your precious series

[diceman]

Hi Professor, can I ask that what is meant by volatility structure? (quote from slide p46 that "the model has only 2 parameter to fit the whole volatility structure which is impossible"). Is there a volatility surface for the interest rate? Thank you!

[Maximus]

Hi Lech, in file, in the function HW2F_ZCB, the python lambda called V takes 2 parameters, t and T, which do not seem to be used inside the body of the lambda function. The lambda works with outer patameters T1 and T2 instead of t and T. Is that intentional? Thanks.

[eugeniomazzetti]

Thank you Lech great video again. Do you have any suggested reading/material explaining how to calibrate the 2F HW model for PFE purpose?

[albertoz]

Hi Lech,
Forward rate are recovered from discount factor (hence from yield curve).
Therefore I’m not sure to have understood why short rate models does not fit the forward curve but they does for the yield curve.
Could you help me to understand this?
Many thanks,
Alberto