Interest Rate Simulation Crash Course – Topic Guide

Interest rates tend to fluctuate on a day-to-day basis as well as occasionally when there is a regime shift. These changes may signify a significant risk to those portfolios and instruments whose values are derived from movements in the interest rate.

Buy Now

Interest rate models are usually employed in order to value instruments. The purpose of these models is to understand interest rate behavior. With a better understanding of how interest rates behave, the risk manager is better able to discern interest rate movements, determine the likely range of future values and estimate the probabilities of losing more that a given amount. Understanding the movements helps in setting acceptable limits; economic policy; valuing financial instruments more reliably or hedging them more effectively.


Topics covered

    1. Components of interest rate models
    2. Features of good models
    3. Criteria employed when selecting models
    4. Differences between various types of term structure models such as equilibrium and no-arbitrage models and one-factor and multifactor models
    5. Estimation and calibration of parameters for, and construction of, the one-factor equilibrium Cox-Ingersoll-Ross (CIR) model,
    6. Construction and utilization of the one-factor no-arbitrage Black-Derman-Toy (BDT) model
    7. Principal Component Analysis (PCA) for the determination of a workable number of components / factors for the Heath, Jarrow, Merton (HJM) model
    8. Construction of the multi-factor no-arbitrage Heath-Jarrow-Merton (HJM) model.


EXCEL files

The pre-packaged deal includes 6 EXCEL files that illustrate examples of the following concepts:

    1. Zero Coupon and Forward rate term structures derivation and construction (pre-requisite)
    2. Calibration of a CIR Model’s parameters to a historical rates data set
    3. Construction of a BDT model
    4. Utilization of the results of a BDT model
    5. Principal Component Analysis
    6. Construction of a HJM 3-factor model

back to top


Random Testimonial

  • ~ Corporate Training Testimonials

    "A most amazing training - hands down the best, most useful, and most relevant I had during my tenure. Simply put, I loved it and will continue to build on the models. 

    Financial Modeling Course Participant
    FGB Training Academy, 
    First Gulf Bank, Abu Dhabi, UAE


    I have attended a number of training courses conducted by Alchemy technologies. Broadly, the areas covered have been Financial Risk Management aspects, Basel II implementation in Pakistan, as well as product knowledge for relatively new products in the our market for instance Financial Derivatives. As trainers, Mr. Jawwad Farid and his team bring in a wealth of conceptual knowledge entwined with their own professional experiences, adapting and honing it to our local market needs. The training courses are very informative and are delivered in a witty and energetic manner. The learning needs of the participants are kept in focus, and they are kept involved by interactive discussions and queries. Personally, I have always left these sessions with a much better understanding and grasp over the subjects delivered, which has helped me professionally.”

    Senior Manager & Team Leader
    Treasury Middle Office
    Habib Bank Limited


    “Jawwad Farid has admirably led the training piece on the Treasury side covering Treasury risk, Treausury products, Derivatives (basic & Advanced), Fixed income securities (Basic & Advanced) and ALM training modules. Jawwad in our opinion is an “Outstanding Senior Trainer” who has deep subject matter knowledge and an uncanny ability to keep the participants engaged in the training process. So far our clients have expressed maximum level of satisfaction in Jawwad’s capability to deliver high value training programs, that have tangibly enhanced their staff’s skill sets.

    Based on our direct more than satisfactory experience, Jawwad’s otherwise exceptional track record on the training side with over 90 technical skill building courses in South Asia, Middle Eastern and Far Easterm markets, we have no hesitation in strongly recommending Jawwad Farid for the training that for participants based out of Malaysia or the adjoining Far Eastern Markets.”

    Mohammad Nasr Ullah
    Principal Consultant
    Consultnomics, FZE


    I have loved each and every workshop from Alchemy. The workshops are extremely helpful in removing queries about Derivatives Pricing, Basel & Regulatory issues. I feel attending the workshops have added value to my knowledge and expertise. Moreover, the instructor is extremely knowledgeable on the subject area and ensures that each candidate returns with similar knowledge and expertise.

    Senior Vice President
    Allied Bank"

  • Read more testimonials »