The object of these lectures is to give an introduction to Interest rate theory from the point of view of arbitrage theory.

Time permitting we will cover the following areas: Short rate models, affine term structures, inversion of the yield curve, HJM forward rate models, the Musiela parameterization, LIBOR market models, the potential approach to positive interest rates.

Prerequisites: The students will be assumed to be familiar with the basics of the martingale approach to arbitrage theory, such as absence of arbitrage, existence of martingale measures, completeness and the uniqueness of the martingale measure. A basic knowledge of stochastic calculus (for Wiener driven processes) is also assumed, including martingale representation theorems and the Girsanov theorem.

The lectures will be based on the textbook

Bjork, T: "Arbitrage Theory in Continuous Time" 3:rd Ed. Oxford University press. (2009)

Overhead slides will be available for the students.