MATH5985 is a Mathematics Level V course. See the course overview below.

Units of credit: 6

Prerequisites: MATH5965 and MATH5975

Cycle of offering: yeach year in Session 2.

Graduate attributes: the course will enhance your research, inquiry and analytical thinking abilities.

More information: this recent course handout (pdf) contains information about course objectives, assessment, course materials and the syllabus. (This pdf will usually be updated by the end of the first week of the session.)

The Online Handbook entry contains up-to-date timetabling information.

If you are currently enrolled in MATH5985, you can log into the WebCT Vista instance of this course.

The fixed-income market is an important sector of the global financial market on which various interest rate-sensitive instruments, such as: bonds, swaps, swaptions, caps, etc. are traded. The management of interest rate risk, by which we primarily mean the pricing and hedging of interest rate products, is an important and complex issue. It creates a demand for mathematical models capable of covering all sorts of interest rate risks.

Due to the specific way in which fixed-income securities are quoted in existing markets, theoretical term structure models are often easier to formulate and analyse in terms of interest rates which are different from the conventional market rates. The course will give an overview of various concepts of interest rates, and will describe the most important interest rate-sensitive contracts.


The crucial part of the syllabus is the presentation of various methods of modelling of the term structure of interest rates, and the valuation of interest rate derivatives within the framework of each methodology. In particular, we deal with various classical examples of short-term rate models, the Heath-Jarrow-Morton methodology, and recently developed market models, such as, the BGM model of LIBORs and Jamshidian's model of forward swap rates.