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Seminar in Quantitative Finance - Interest Rate Theory

Topics Course (Lecture/Seminar)

taught by Prof. Dr. Eva Lütkebohmert-Holtz and Miguel Herculano



Within the elementary arbitrage pricing theory, interest rates are usually assumed to be constant. However, this assumption is, of course, not very realistic. In fact, the variation of interest rates is one of the major risks financial institutions like banks and insurance companies are exposed to. To manage and control these risks, there exists a large variety of interest-linked products and derivatives, and the amount of money invested in interest rate markets typically is much higher than in stock markets.

In this course, we will introduce the most important interest-based products and related contracts like bonds, swaps, caps/floors, interest rate futures as well as swaptions and show how they can be priced in different interest rate models. We will discuss short rate as well as forward rate models in this context. Most of these are driven by a Brownian motion, therefore some basic knowledge on this process and related stochastic differential equations would be desirable.

The topics course consists of two components. A lecture part covering the introductory material and a seminar part in which different interest rate models will be studied and applied to real data. The lecture covers 2 contact hours (4 ECTS) and will be given in the first part of the semester. The seminar (6 ECTS) builds on the material from the lecture and will take place in the second part of the semester. Both parts can be taken individually. Students who participate in both lecture and seminar, can also take this as a topics course.

Weekly Dates
Lecture & Seminar

Mondays, 2-4pm, room 1199 KG I
Wednesdays, 2-4pm, room 1015 KG I

First/Last Meeting

First Meeting

October 21st, 2019 - December 11th, 2019
(except November 25th, 2019)

Introduction November 25th, 2019; 2-4pm, room 1199 KG I
December 16th, 2019 - February 12th, 2020
Prerequisites                                                                      Principles of Finance, Futures and Options (can be taken in parallel)

This course is primarily intended for students in the second year of the master program, and can be regarded as preparation for potential master theses.

Application is required. Interested students are asked to apply via email here until October 9th, 2019. Applications should indicate the course of studies, the number of terms, and should include a recent transcript as well as a short CV.

Please submit the seminar registration form until December 1st, 2019.

ETCS (credit points)

4 Lecture + 6 Seminar = 10 Topics Course



  • Successful participation in the final examination.


  • Oral presentation of an individual seminar topic,
  • a short but precise and meaningful seminar paper (max. 5 pages + references, tables and graphs) together with a well documented implementation of the performed numerical simulation in the software R or Matlab if the topic involves any numerical implementations,
  • an active participation during the whole course.

Please find the current examination dates on the examination office's homepage.

For a correct identification, please bring your UniCard AND your ID to the exam.

For details on the registration and the registration period for the first exam, please also look at the websites of the examination offices of Economics , VWL and Mathematics for further information!

ILIASSeminar materials will be available on ILIAS. The password necessary to register for the course on ILIAS will be given in the first meeting!

The seminar  is open for M.Sc. Economics, M.Sc. Mathematics, M.Sc. VWL and diploma students in their advanced study period.

In M.Sc. Economics, the course can be credited in the profile "Finance".

In M.Sc. Mathematics, the course can be credited for the special profile "Finanzmathematik" or as an elective.

In M.Sc. VWL, the course can be credited for

  • VWL-Theorie (examination regulations from 2011)

  • Accounting, Finance, and Taxation (new examination regulations, valid from winter term 2014/2015)

In M.Sc. BWL, the course can be credited as elective course Volkswirtschaftslehre.

For VWL Diplom, the course can be credited in "Finanzmärkte und -management" or "Finanz- und Rechnungswesen".

Main References

Andersen, L., Piterbarg, V.: Interest rate modeling. Atlantic Financial Press, 2010

Brigo, D., Mercurio, F.: Interest Rate Models - Theory and Practice (2nd ed.), Springer, 2006

Filipovic, D.: Term-Structure Models: A Graduate Course. Springer, 2009

Hull, J.C.: Option, Futures, and other Derivatives (7th ed.). Pearson Prentice Hall, 2009

Zagst, R.: Interest Rate Management. Springer, 2002


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