About the IATACF

Module 6 – Bond Investments and Credit Analysis

In the initial section of module six, we will examine various interest rate models commonly employed in the industry. Our focus will be on understanding the practical application and constraints of each model. In the subsequent segment, you will delve into the realm of credit and gain insights into how credit risk models are harnessed in quantitative finance. This will encompass structural, reduced-form, and copula models.

Analyzing Fixed Income Products

Overview of Fundamental Fixed Income Products: Descriptions and Key Characteristics
Common Attributes of Fixed Income Products: Notable Features
Analyzing Market Value: Yield, Duration, and Convexity
Yield Curve Construction and Forward Rates
Understanding Swaps
The Interplay Between Swaps and Zero-Coupon Bonds

Modeling Stochastic Interest Rates

Interest Rate Stochastic Models
Pricing Equation Derivation for Various Fixed Income Products
Overview of One-Factor Interest Rate Models
Theoretical Foundations of Multi-Factor Interest Rate Modeling
Well-Known Two-Factor Models

Fine-tuning and Analyzing Data

Selecting Time-Dependent Parameters in One-Factor Models for Deriving Today’s Yield Curve
Pros and Cons of Yield Curve Fitting
Analyzing Short-Term Interest Rates for Optimal Volatility and Drift Model Selection
Utilizing Yield Curve Slope Analysis for Market Risk Pricing Insights

Applying Probabilistic Techniques to Interest Rates

Probabilistic Pricing of Interest Rate Products
Equivalent Martingale Measures in Finance
Foundations of Asset Pricing for Bonds
Utilizing Popular Interest Rate Models
The Behavior of Bond Prices Over Time
Understanding the Forward Measure in Finance
Pricing Formula for Derivatives on Bond Assets

Exploring the Heath-Jarrow-Morton Model

The Heath, Jarrow & Morton (HJM) Forward Rate Model
Exploring the Connection Between HJM and Spot Rate Models
Pros and Cons of the HJM Approach
Unpacking the Decomposition of Random Movements in the Forward Rate Curve into Its Core Components

Navigating Credit Default Swaps

Introduction to Credit Default Swaps (CDS)
Default Modeling Toolkit: Inhomogeneous Poisson Process
CDS Pricing: Fundamental and Advanced Models
Estimating Intensity through Bootstrapping from CDS Market Quotes
Incorporating Accruals and Upfront Premiums in CDS Pricing

Delving into Intensity Models

Examining default modeling through the Poisson Process
Investigating the connection between intensity and default arrival time
Comparing the pricing of risky bonds with constant and stochastic hazard rates
Analyzing bond pricing when considering potential recovery
Exploring the principles behind Affine Models
Utilizing Affine Intensity Models and incorporating the Feynman-Kac formula
Demonstrating a practical application of a two-factor Affine Intensity Model with the example of Vasicek

Comprehending CDOs and Correlation Sensitivity

Evaluating Pricing and Managing Risk in the CDO Market
Understanding Loss Functions and the CDO Pricing Equation
Drawing Inspiration from Loss Distribution
Introduction to Copula Functions
Categorizing Copula Functions
Simulation with the Gaussian Copula
Utilizing the 3-Factor Gaussian Copula Model
Exploring Correlation: Intuition and Timescale
Unpacking Linear Correlation and Its Common Misuses
Investigating Rank Correlation
Correlation in Exotic Options
Employing an Uncertain Correlation Model for Mezzanine Tranches
Analyzing Compound (Implied) Correlation in Loss Distribution

Evaluating X-Valuation Adjustment

Historical Evolution of OTC Derivatives and Xva
Credit and Debt Value Adjustments (CVA and DVA)
Funding Value Adjustment (FVA)
Margin and Capital Value Adjustments (MVA and KVA)
Contemporary Market Practices and Their Applications
Implementing Counterparty Credit Valuation Adjustment (CVA)
Evaluation of Numerical Methods for Quantifying CVA, including Exposure Measurement and Monte Carlo Simulation, along with the Libor Market Model
Exemplification of the Methodology, encompassing DVA, FVA, and related adjustments