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CM2: Financial Engineering & Loss Reserving
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Module 10
Interest Rate and Credit Risk Modeling
1
Understanding Yield Curves
Define the term structure of interest rates and interpret different yield curve shapes.
2
Calculating Spot and Forward Rates from Bond Prices
Calculate spot rates and forward rates from bond prices.
3
Theories of the Term Structure
Describe theories of the term structure: expectations, liquidity preference, and market segmentation.
Pricing Bonds with One-Factor Short Rate Models
Apply one-factor short rate models (Vasicek, Cox-Ingersoll-Ross) to price zero-coupon bonds.
5
Understanding Credit Risk and Events
Define credit risk and describe common credit events (e.g., default).
6
Merton Model for Default Probability
Apply the Merton structural model to estimate default probability.
7
Reduced-Form Models and Hazard Rates in Credit Risk
Describe reduced-form (intensity-based) models and their use of hazard rates for credit risk.
8
Calculating Credit Spreads
Calculate credit spreads from market data on corporate and government bonds.
Previous module
Option Price Sensitivities: The Greeks
Next module
Actuarial Risk Models