Product 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 several new chapters. 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 new chapters. 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.

Product Details

• Amazon Sales Rank: #259733 in Books
• Published on: 2006-08-04
• Original language: English
• Number of items: 1
• Binding: Hardcover
• 981 pages

Customer Reviews

Good book if you've got past Baxter and Rennie
This is a good overview of some of the more complex interest rate models, however it does assume familiatrity with the fundamental theorem of finance and hence why martingales are important. It assumes the reader knows all about filtration, probability spaces and changes of measure (Radon Nikodym derivatives and the change of measure theorem). If you are not already familiar with all this then the book will not be helpful to you - read something more basic like Financial Calculus (Baxter and Rennie).

Aside to the technical content, I find many of the quotes at the beginning of each chapter (usually from DC comics) pointless and sometimes irritating.

A must for quant
Good reference for the available interest rate model, especially for the pricing of some complex interest rate derivatives. A must for IRD Quants.