Fixed Income OpenCourseWare · Course Overview

Interest Rate Models

This course develops the mathematical structure of interest-rate modeling from first principles through to modern market practice. The primary text is Brigo & Mercurio’s Interest Rate Models: Theory and Practice (2nd ed.), supplemented with derivations, problem sets, and worked examples.

Primary Text: Damiano Brigo and Fabio Mercurio, Interest Rate Models: Theory and Practice, Springer Finance, 2nd edition (ISBN 978-3-540-22149-4). Available through Springer and most university libraries.
Audience: Graduate students, quantitative analysts, fixed-income practitioners
Prerequisites: Stochastic calculus (Itô's lemma, Girsanov's theorem), probability theory, linear algebra, basic familiarity with derivatives pricing
Philosophy: Rigorous derivation first; calibration and practice second. Every model is derived from no-arbitrage conditions before implementation is discussed.
Format: Lecture notes, problem sets, and solutions released weekly. Video lecture for each batch.

Lecture Archive

Lec. 01

Bank Account, Discounting, Zero-Coupon Bonds, and Spot Rates

Brigo & Mercurio 1.1–1.2

Lec. 02Forthcoming

Lec. 03Forthcoming

Lec. 04Forthcoming

Release Progress

1 released~40 total

Lectures are released in weekly batches. The course is ongoing.

Course Arc

Part I · B&M Ch. 1

Foundations of Discounting

Money-market account, short rate, discount factors, zero-coupon bonds, spot and forward rates, LIBOR.

Part II · B&M Ch. 3–4

Short-Rate Models

Affine term-structure models, Vasicek, CIR, Hull-White, Black-Karasinski.

Part III · B&M Ch. 5–6

The HJM Framework

Heath-Jarrow-Morton framework, forward-rate dynamics, the no-arbitrage drift condition.

Part IV · B&M Ch. 6–12

Market Models

LIBOR market model, swap market model, swaption pricing, calibration to market data.

Part V · B&M Ch. 22+

Credit and Extensions

Credit derivatives, CDS pricing, intensity models, and selected advanced topics.