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Forecasting Interest Rates and Applications workshop: December 22nd, 23rd

Interest Rate Forecasting and Modeling workshop

The workshop is aimed at treasury, risk and fixed income investors who use interest rate forecasting tools for arbitrage, ALM, risk or credit policy decisions. Teaching methodology is based on intensive hands on model building and application cases.

The workshop covers four different families of interest rate models starting with the simplest CIR (Cox, Ingersoll & Ross) and finishing up with the multi-factor HJM model. We then look at applications of the same models in Asset Liability Management, Fixed Income Arbitrage, monetary policy announcements and predicting unexpected interest rate shocks. A final session extends the analysis to a macro economic model of the economy using core interest rate drivers and Monte Carlo simulation.

By the end of this workshop participants will be able to:

  • Use models to identify fixed income arbitrage opportunities in treasury term structure
  • Build basic and advance interest rate models in excel for forecasting and extrapolating interest rates across the full range of maturity tenors
  • Review the impact of external shocks (such as oil prices) on domestic interest rate environment and monetary policy
  • Review interest rate inputs for ALCO meetings as well as ALM models.


The packaged workshop represents an integrated skill building exercise that combines concepts with practical hands on application and is aimed at professionals who deal with pricing, valuation and portfolio management issues related to fixed income products in Pakistan. Please see the Interest Rate Models workshop announcement on Learning Corporate Finance for more details.

Interest rate models: Outline





The Interest Rate Modeling Crash Course in 90 minutes

The term structure, Zero and Forward Rates.

Building Static Interest Rate Models.

Bootstrapping the Zero and Forward Curve.

Using interpolation and interpreting the Forward Curve.


Interest Rate Model Families.

Cox, Ingersoll and Ross (CIR), Black, Derman and Toy (BDT) and the multifactor HJM.

Building models using macro factors.


Case Study A: CIR and ALM – Generating Rates and re-pricing products

Building a simple interest rate generator and linking it to the ALM model.

Revaluing loan book and collateral impairment.

Linking ALM inputs with model drivers.

Calibrating CIR for domestic interest rate data.



Case Study B: Term Structure model and BDT: When issued pricing

Building BDT (Black, Derman and Toy).

Filling in the blanks for intermediate tenor rates.

Using BDT to price when issued securities and identifying opportunities for fixed income arbitrage.


Case Study C: Forecasting forward rates and HJM

Forward rates and the multifactor HJM model.

Using HJM to price interest rate derivatives.

Building the HJM model.


Case Study C: Forecasting forward rates and HJM

Multifactor model applications continued.

Building and testing the HJM model. PCA Analysis and HJM calibration.


Case Study D: Simulating the Economy

Building a macro economic model for simulating a national economy and monetary policy decisions. Identifying drivers. Implementing the model. Interpreting results. Review, wrap up and closure.