Term-Structure and Credit Derivatives

Go to Course: https://www.coursera.org/learn/financial-engineering-termstructure

Introduction

### Course Review: Term-Structure and Credit Derivatives on Coursera **Course Overview** “Term-Structure and Credit Derivatives” is a comprehensive online course that delves into the intricate world of interest rates and credit derivatives. Offered on Coursera, this course is designed for finance professionals and students who want to build a robust understanding of fixed income securities, derivatives, and model calibration. From its insightful modules to practical assignments, this course equips learners with the skills necessary to navigate the complexities of the financial markets. **Course Content and Structure** The course unfolds over a series of well-structured modules, each building on the previous to enhance understanding progressively: 1. **Module 1: Term Structure Models I** - This module kicks off with a thorough exploration of interest rate evolution, contrasting the static notion of fixed interest with the dynamic reality. The instruction of how to model the evolution of interest rates, akin to stock price modeling with binomial models or Black-Scholes, lays the groundwork for understanding fixed-income instruments. Students familiarize themselves with key derivatives like options and swaps, providing a solid foundation for further learning. 2. **Module 2: Term Structure Models II (and Introduction to Credit Derivatives)** - Diving deeper, this module emphasizes the necessity of model calibration in finance, highlighting the importance of aligning mathematical models with market realities. The course encourages students to utilize optimization methods, making it crucial for those keen on financial engineering. 3. **Module 3: Introduction to Credit Derivatives** - In week four, the focus shifts to credit derivatives, an essential element in understanding financial crises, notably the 2008 recession. This segment is particularly enlightening, drawing learners into the critical role these derivatives play in modern finance. 4. **Module 4: Mortgage Mathematics and Mortgage-Backed Securities** - This module introduces learners to mortgage-backed securities (MBS), utilizing case studies to dissect the concept of securitization. The practical approach here demystifies complex financial instruments, making it accessible and engaging. 5. **Module 5: Assignment - Collateralized Mortgage Obligations (CMO)** - In the final weeks, learners tackle CMOs, culminating in hands-on experience with pricing and practical assignments. This real-world application of course content solidifies understanding and prepares students for challenges in the finance industry. **Interactive Learning Experience** The course promotes an interactive learning experience. Students are encouraged to participate in discussion forums for clarification and collaboration, fostering a community-oriented environment. This is not just a self-paced course; it’s an engaging platform where assistance and peer learning are encouraged. **Recommended For** The “Term-Structure and Credit Derivatives” course is highly recommended for: - Finance professionals aiming to deepen their understanding of fixed income and credit markets. - Students seeking to bolster their knowledge in financial engineering and risk management. - Anyone interested in the mechanisms that underpin financial markets, especially in the context of interest rates and derivatives. **Conclusion** In conclusion, this course is a commendable resource for those looking to enhance their expertise in finance, particularly in areas of interest rates, credit derivatives, and their applications in real-life scenarios. The blend of theoretical groundwork and practical applications ensures a holistic learning experience, making it a valuable addition to the Curricula of aspiring financial professionals. Whether you're looking to improve your knowledge base or prepare for a career in finance, enrolling in “Term-Structure and Credit Derivatives” on Coursera could be a notable next step in your educational journey.

Syllabus

Course Overview

Welcome to week 2! This week, we will re-visit the fixed income instruments. So far we have been very comfortable with the notion of a fixed interest rate. In reality, however, interest rate is always evolving over time. Previously, we have seen that the evolution of stock prices can be modeled via multi-period binomial models or the Black Scholes model, but how do we capture the evolution of interest rate? Let us unfold the modeling of interest rate in this week. We will also see that all security derivatives have their equivalents in fixed income domains, such as options, forwards, futures and swaps. If you get stuck on the quizzes, you should post on the Discussions to ask for help. (And if you finish early, I hope you'll go there to help your fellow classmates as well.)

Welcome to week 3! This week, we will start with an important practice in real-life financial engineering - model calibration. The mathematical models are no good if they do not capture the regularities in the financial markets. In order to ensure that our models are useful, we need to search for model parameters that describe the current market conditions. You might find it very helpful to review the optimization methods in the pre-requisite materials of Introduction of Financial Engineering and Risk Management.

Welcome to week 4! This week we will introduce credit derivatives, a very powerful family of derivative products that are partially responsible for the Financial Crisis in 2008. As always, if you get stuck on the quizzes, you should post on the Discussions to ask for help. (And if you finish early, I hope you'll go there to help your fellow classmates as well.)

Welcome to week 5! This week, we will focus on a brand new set of financial products - mortgage-backed securities. Mortgage-backed securities are constructed from mortgages, which are common cash flows occurring in the housing market. Through a detailed case study of mortgage-backed securities, we will touch upon the important concept of securitization, i.e. how to package common cash flows into securitized products. We will explore a specific kind of financial product - Collateralized Mortgage Obligations (CMO). As always, if you get stuck on the quizzes, you should post on the Discussions to ask for help. (And if you finish early, I hope you'll go there to help your fellow classmates as well.)

Welcome to week 6! This week, we will explore a specific kind of financial product - Collateralized Mortgage Obligations (CMO). We will also get some experience in pricing those securities. Finally, we will apply the knowledge we learned through the course by working on a quiz and a practical assignment. If you get stuck on the problems, you should post on the Discussions to ask for help. If you finish early, I hope you'll go there to help your fellow classmates as well.