Editorial Reviews
Book Description
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 inflation-linked derivatives. The three final new chapters of this second edition are devoted to credit. 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), CDS Options and Constant Maturity CDS - are discussed, building on the basic short rate-models and market models introduced earlier for the default-free market. Counterparty risk in interest rate payoff valuation is also considered, motivated by the recent Basel II framework developments.
Book Info
A rigorous explanation of how interest rate models work in theory, suggesting how to use them for concrete pricing. Designed to help quantitative and advanced traders price and hedge interest-rate derivatives using a sound theoretical apparatus. Also for advanced undergraduate and graduate students.
Interest Rate Models
Interest Rate Models,Damiano Brigo,Fabio Mercurio,Springer,3540417729,Applied,Business & Economics,Business / Economics / Finance,Business/Economics,Derivative securities,Economics - General,Finance,Financial Markets,Interest,Interest rates,Mathematical Models,Prices,Probability & Statistics - General,Business & Economics / Finance,JEL classification: G12, G13, E43,MSC (2000): 60H10, 60H35, 62P05, 65C05, 65C20, 90A09,calibration,pricing,stochastic calculus
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