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Interest Rate Models - Theory and Practice: With Smile, Inflation and Credit(Springer Finance)

Interest Rate Models - Theory and Practice: With Smile, Inflation and Credit(Springer Finance)


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About the Book

The 2nd edition of this successful book has several new features. The calibration discussion of the basic LIBOR market model has been enriched considerably, with an analysis of the impact of the swaptions interpolation technique and of the exogenous instantaneous correlation on the calibration outputs. A discussion of historical estimation of the instantaneous correlation matrix and of rank reduction has been added, and a LIBOR-model consistent swaption-volatility interpolation technique has been introduced.The old sections devoted to the smile issue in the LIBOR market model have been enlarged into a new chapter. New sections on local-volatility dynamics, and on stochastic volatility models have been added, with a thorough treatment of the recently developed uncertain-volatility approach. Examples of calibrations to real market data are now considered.The fast-growing interest for hybrid products has led to a new chapter. A special focus here is devoted to the pricing of convertible bonds and inflation-linked derivatives.Since Credit Derivatives are increasingly fundamental, and since in the reduced-form modeling framework much of the technique involved is analogous to interest-rate modeling, Credit Derivatives - mostly Credit Default Swaps (CDS) and CDS Options - are discussed, building on the basic short rate-models and market models introduced earlier for the default-free market.

Table of Contents:
Basic Definitions and No Arbitrage.- Definitions and Notation.- No-Arbitrage Pricing and Numeraire Change.- From Short Rate Models to HJM.- One-factor short-rate models.- Two-Factor Short-Rate Models.- The Heath-Jarrow-Morton (HJM) Framework.- Market Models.- The LIBOR and Swap Market Models (LFM and LSM).- Cases of Calibration of the LIBOR Market Model.- Monte Carlo Tests for LFM Analytical Approximations.- The Volatility Smile.- Including the Smile in the LFM.- Local-Volatility Models.- Stochastic-Volatility Models.- Uncertain-Parameter Models.- Examples of Market Payoffs.- Pricing Derivatives on a Single Interest-Rate Curve.- Pricing Derivatives on Two Interest-Rate Curves.- Inflation.- Pricing of Inflation-Indexed Derivatives.- Inflation-Indexed Swaps.- Inflation-Indexed Caplets/Floorlets.- Calibration to market data.- Introducing Stochastic Volatility.- Pricing Hybrids with an Inflation Component.- Credit.- and Pricing under Counterparty Risk.- Intensity Models.- CDS Options Market Models.

Review :
From the reviews: SHORT BOOK REVIEWS "The text is no doubt my favorite on the subject of interest rate modeling. It perfectly combines mathematical depth, historical perspective and practical relevance. The fact that the authors combine a strong mathematical (finance) background with expert practice knowledge (they both work in a bank) contributes hugely to its format. I also admire the style of writing: at the same time concise and pedagogically fresh. The authors' applied background allows for numerous comments on why certain models have (or have not) made it in practice. The theory is interwoven with detailed numerical examples...For those who have a sufficiently strong mathematical background, this book is a must." From the reviews of the second edition: "The book 'Interest Rate Models - Theory and Practice' provides a wide overview of interest rate modeling in mathematical depth. ... The authors found a good approach to present a mathematically demanding area in a very clear, understandable way. The book will most likely become ... one of the standard references in the area. ... if one were to buy only one book about interest rate models, this would be it." (David Skovmand and Michael Verhofen, Financial Markets and Portfolio Management, Vol. 21 (1), 2007) "This is the book on interest rate models and should proudly stand on the bookshelf of every quantitative finance practitioner and student involved with interest rate models. If you are looking for one reference on interest rate models then look no further as this text will provide you with excellent knowledge in theory and practice. ... is simply a must for all. Especially, I would recommend this to students ... . Overall, this is by far the best interest rate models book in the market." (Ita Cirovic Donev, MathDL, May, 2007) "This is a very detailed course on interest rate models. Its main goal is to construct some kind of bridge between theory and practice in this field. From one side, the authors would like to help quantitative analysts and advanced traders handle interest-rate derivatives with a sound theoretical apparatus. ... Advanced undergraduate students, graduate students and researchers should benefit from reading this book and seeing how some sophisticated mathematics can be used in concrete financial problems." (Yuliya S. Mishura, Zentralblatt MATH, Vol. 1109 (11), 2007)


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Product Details
  • ISBN-13: 9783540221494
  • Publisher: Springer-Verlag Berlin and Heidelberg GmbH & Co. KG
  • Publisher Imprint: Springer-Verlag Berlin and Heidelberg GmbH & Co. K
  • Edition: Revised edition
  • Language: English
  • Returnable: N
  • Series Title: Springer Finance
  • Width: 155 mm
  • ISBN-10: 3540221492
  • Publisher Date: 04 Aug 2006
  • Binding: Hardback
  • Height: 235 mm
  • No of Pages: 982
  • Returnable: N
  • Sub Title: With Smile, Inflation and Credit


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Interest Rate Models - Theory and Practice: With Smile, Inflation and Credit(Springer Finance)
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Interest Rate Models - Theory and Practice: With Smile, Inflation and Credit(Springer Finance)
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