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.

Ever since I started running risk management training workshops and teaching Executive MBA students, I had been looking for a textbook that walked the middle ground between plain English, as few mathematical equations as possible and exactly the right topics I needed to teach. It had to be concise and to the point yet cover the basics of quantifying risk, implementing risk policies, derivative pricing, product types and real life market applications. Easy to read but deep enough to be a handy desk reference, perhaps a cross between a HBS case and a customized text book.

The book that came closest to this was Paul Wilmot on Quantitative Finance. But the 3 volume Wilmot or the single volume Wilmost summarized text was beyond the price range of most of my students in the region.

Towards the end of 2008 we started work on a project that resulted in the product that became Risk Frameworks and Applications. Let me be honest and upfront, we had to let a few formulae in (Paul Petty will never forgive me) since the simplest pricing model also required elementary mathematics. But we compensated this failing by including as many rich cases as we could find that would help students understand and appreciate the world risk managers and derivative traders live in.

It was a book inspired by questions, not answers. While the first edition weighed in 195 pages and covered the basic essence of topics I taught while teaching derivative pricing, risk management and product application courses, it quickly became apparent that the list of topics need to be expanded. Work on Risk Frameworks and Applications started even before the first edition hit the printing press.

The second edition came out as an electronic edition this evening. New topics include multiple chapters on Asset Liability Management, Fixed Income Instruments and pricing. From the mundane Forward Rate Agreement to the exotic commodity linked note. Also a brand new chapter on building Monte Carlo simulators as well as on valuation of mortgage backed securities with multiple interest rate models. Once again the focus is on pricing and applications and building models in excel spreadsheets rather than complex derivations.

At almost 400 pages, the book is double the size of the first edition and possibly contains 70% of the content found on this site. Like all good book, this is a book that we wrote primarily for ourselves. We hope that you have as much fun reading it as we had putting it together. To buy your copies at the discounted introductory price please see the Online Finance Course Store. The book is listed under the Corporate Finance Section.


Ps. Here is the summarized table of content for those of you who would like a quick look see…



Chapter 1 – Framework    

Chapter Two – Applications    

Chapter Three – Calculating Value at Risk


Chapter One – Terminology

Chapter Two – Products & Pricing

Chapter Three – Variations



Building Equities, Commodities, Currencies and Interest Rate Monte Carlo (MC) Simulators in Excel    

Monte Carlo Simulation Application: Forecasting the Monetary Policy Rate decision    

Advanced Fixed Income Securities    

Forward Rate Agreements    

Forward Contracts    


Caps and Floors    

Accrual Swaps    

Range Accrual Note    

Commodity Linked Note    

Asset Liability Management    

Duration and Convexity

ALM Risk Measurement Tools    


Liquidity Management    

Liquidity Ratios and Analysis    

Liquidity Management    

The Treasury Function    

Trade Flows (FX desk)    

The Treasury Function Operations

Valuation of Mortgage Backed Security (MBS) Pools    

Valuation of Mortgage Backed Securities    

Factoring in Prepayments    

Annexure A – Modeling Defaults – The KMV structured approach    

Annexure B – Calculating Option Adjusted Spread    

Annexure C –Calibration of the Cox, Ingersoll and Ross (CIR) model    

Principal Component Analysis (PCA)    


The Crude Oil Price Debate    

Gold and the Australian Dollar    

Correlations between Crude Oil and Other Commodities    

Crude Palm Oil Futures    

Crude Oil and Inflation    

Historical Spreads in Bond Yields    

Volatility Trends in Commodity Prices    

Commodity Correlations    


Sometimes while going through an online course in addition to core training concepts it helps if we have a real life case to illustrate a core learning point. Here is a list of cases, walk through, numerical examples and samples of addressing a specific type of analysis available on Learning Corporate Finance. While the intended audience is business school students, analysts and associates, anyone with an interest in finance or the related finance risk and computational finance topic can benefit from the following list of detailed business cases.

Non numerical case studies

Finance Training Courses Case Studies: Marketing-New Markets Case Study: Entry and pricing strategy for UK, for a US insurance software firm

Finance Training Courses Case Studies: Online Education – The battle for online MBA – Strategy and Tactics

Finance Training Courses Case Studies: Corporate Finance Training – Advertising strategy for an e-education portal

Finance Training Courses Case Studies: Derivative Products: Course Guide

Finance Training Courses Case Studies: Middle Office review: Sample middle office gap analysis report

Finance Training Courses Case Studies: Risk Management: Sample Board Risk Policy document and Risk Policy table of content

Finance Training Courses Case Studies: Online Finance – Building a business case for risk management

Finance Training Courses Case Studies: Building Comparative Solution Matrix for Technology Products

Calculation case studies and walk through examples

Finance Training Courses Case Studies: A Risk framework for Crude Oil and Petrochemical industry: Course Guide

Finance Training Courses Case Studies: Asset Liability Management – Crash Course

Finance Training Courses Case Studies: Building a valuation model for an online education business

Finance Training Courses Case Studies: Forecasting the Monetary Policy decisions – will there be a rate cut or not

Finance Training Courses Case Studies: Calculating Value at Risk

Finance Training Courses Case Studies: Calculating Value at Risk (VaR): Course Guide

Company specific business case studies

Case Studies at Finance Training Courses: AMD: Valuation & Projections: Case Guide

Case Studies at Finance Training Courses: Office Depot: Ratio Analysis

Case Studies at Finance Training Courses: Electronic Arts (EA): Corporate Finance:

Case Studies at Finance Training Courses: ODP and Staples: Ratio Analysis

Case Studies at Finance Training Courses: ODP and Staples: Comparative Ratio Analysis

Case Studies at Finance Training Courses: Credit Process: Baldwin Piano

Case Studies at Finance Training Courses: Corporate Finance: Limited Liability (LLC) or C-Corp




Eight months ago I asked myself a simple question. Is it possible to make money online selling content and advertising to people I haven’t met with only Google as a facilitator. The general answer I had received over the past few years was yes but the details about “how” were missing.

Three friends held out their hands so that I could experiment and discover this brave new world. The first is the guru of SEO led businesses in Pakistan, none other than Zafar Khan of Sofizar. Zafar’s openness and willingness to lay threadbare the secrets of the magic sauce behind SEO was amazing as well as inspirational. The second was Badar Khushnood at Google who helped out multiple times in demystifying myths around Google, facilitated troubled waters around my Adsense account and also gave me the most clear headed future roadmap for Learning Corporate Finance. The third and final will unfortunately remain un-named for now but if it wasn’t for this gentleman the adventure would have never happened. For it was this mentor who actually sat me down patiently one Saturday afternoon, almost a year ago and walked me through the process of connecting the dots between dollars, pageviews, content and SEO.

So about a year later, here is what I have to report. After 8 painful months and a number of false starts and embarrassing mis-steps, the adventure that started as Learning Corporate Finance is now a full fledge business. No earth shattering numbers, mouth watering valuations, or printing press revenues as yet, but still a business.

In our first proper month with an online store in October 2010, 7 months after launch, Learning Corporate Finance booked US$160 in content sales an another US$17.6 in advertising revenues. So just under 180 dollars in revenue with about 7,000 unique visitors a month and 15,000 page views in our first month with an online store. And this despite the fact that from a contribution, growth and effort point of view October was a write off on account of my participation in the APICTA ICT Awards and our effort to find the business a new and permanent home at Finance Training Courses. The three months of my comical efforts (tragic from a personal point of view) to redirect the old site to the new one deserve a book rather than a post which I will write as soon as I have recovered from the trauma of the last two weeks.

So now the game is on in trying to move this forward as quickly as possible by adding as much traffic as quickly as possible before the year is out. The goal in October was to cross 30,000 visitors and 90,000 pageviews per month before the end of the year and I am open to any help, suggestion and ideas that will make that possible.

For now go give Finance Training Courses a peek at its new home.