Financial Engineering Course: Lecture 3 part 2/2

Hello everyone,

Today, we continue with Lecture no. 3 (part 2 out of 2), discussing the HJM framework. In particular, I will cover the Ho-Lee and the Hull-White models and the arbitrage-free conditions. But, most importantly, I will show you why you DON’T need to calibrate these models to the yield curve, i.e., the calibration to the yield curve is for FREE. This finding will be confirmed with experiments in Python. Finally, there will be two homework assignments!

In today’s lecture, we will cover the following subjects:
– Arbitrage Free Conditions under HJM
– Ho-Lee Model and Python Simulation
– Hull-White Model
– Hull-White Model and Simulation in Python
– Summary of the Lecture + Homework

Lecture slides and additional materials you can find in the link in the video’s description.

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 5- Interest Rate Products
Lecture 6- Construction of Yield Curve and Multi-Curves
Lecture 7- Pricing of Swaptions and Negative Interest Rates
Lecture 8- Mortgages and Prepayments
Lecture 9- 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