MTH5520 - Interest rate modelling - 2017

6 points, SCA Band 2, 0.125 EFTSL

Postgraduate - Unit

Refer to the specific census and withdrawal dates for the semester(s) in which this unit is offered.



Organisational Unit

School of Mathematical Sciences


Dr Yan Dolinsky

Unit guides



  • Second semester 2017 (Day)


Interest rate curves. Zero-coupon bonds, spot and forward interest rates. Interest rate derivatives. Stochastic differential equations. Change of measures. No arbitrage pricing and change of numeraire. One-factor short rate models, including Vasicek, Hull and White, CIR and affine models. Two-factor short rate models. The HJM framework and models for forward rates. LIBOR models. Pricing of interest rate derivatives: swaps, caps and swaptions.


On completion of this unit students will be able to:

  1. Develop specialised mathematical knowledge and skills within the field of stochastic calculus.
  2. Understand the complex connections between financial and probabilistic concepts.
  3. Apply sophisticated stochastic modelling skills within the context of interest rate modelling.
  4. Apply critical thinking to problems in interest rate modelling.
  5. Formulate expert solutions to practical financial problems using specialised cognitive and technical skills within the field of stochastic calculus.
  6. Communicate complex information in an accessible format to a non-mathematical audience.


Examination (3 hours): 60% (Hurdle)

Continuous assessment: 40%

Hurdle requirement: To pass this unit a student must achieve at least 50% overall and at least 40% for the end-of-semester exam.

Workload requirements

Two 2-hour lectures per week

See also Unit timetable information

Chief examiner(s)


MTH3251 or MTH3260 or equivalent


Only students enrolled in the Master of Financial Mathematics can enrol in this unit. Exceptions can be made with permission from the unit co-ordinator.