Basic concepts of stochastic modeling in interest rate theory, As a standard reference on interest rate theory I recommend. [Brigo and Mercurio()]. New sections on local-volatility dynamics, and on stochastic volatility models Counterparty risk in interest rate payoff valuation is also considered, motivated by the recent Basel II framework developments. Damiano Brigo, Fabio Mercurio. Counterparty risk in interest rate payoff valuation is also considered, motivated Interest Rate Models Theory and Practice. By Damiano Brigo, Fabio Mercurio.
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The authors give a brief overview of structural models, emphasizing their similarities to barrier-free option models, but do not treat them in detail in the book, since they do not have any analogues to 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. But the Vasicek model allows negative interest rates and is mean reverting. 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.
Its main goal is to construct some kind of bridge between theory and practice in this field.
Interest Rate Models Theory and Practice
The old sections devoted to the smile issue in the LIBOR market model have been enlarged into a new part. One of the best Quant books. There is also an excellent list of “theoretical” and “practical” questions in the preface that the authors use to motivate the book, along with a detailed summary of upcoming chapters.
A Graduate Course Springer Finance.
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One person found this helpful. This option is attainable by dealing only in a stock and a bond.
The authors give an overview of these entities for the curious reader but do not use them in the book. Extended table of contentswhere the extended table of contents is available. Examples of calibrations to real market data are now considered.
For those who have a sufficiently strong mathematical background, this book is a must. The book is very complete about all the models in literature, from 1 factor model all the way to Libor Market models and SABR.
Learn more about Amazon Prime. This simultaneous attention to theory and practice is difficult to find in other available literature.
Damiano Brigo and Fabio Mercurio: Interest Rate Models – Theory and Practice
The 2nd edition of this successful book has several new features. Therefore, this book aims both at explaining rigorously how models work in theory and at suggesting how to implement them for concrete pricing. Readers interested in counterparty risk will be exposed to an interesting assertion, namely that the value of a generic claim that has counterparty risk is always less than the value of a similar claim whose counterparty has a probability of default equal to zero.
If this value drops below a certain level, the firm is taken to be insolvent. In the LMM part the book also listed many recent developements again, for the time it was published in terms of correlation modeling, vol modeling and such. Stochastic Calculus for Finance II: 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 The author did a good balance between theory and practice.
One is led to ask in this case, and in general, whether interest rate data can serve as a proxy of default calibration, and vice versa.
EconPapers: Damiano Brigo and Fabio Mercurio: Interest Rate Models – Theory and Practice
Alexa Actionable Analytics for the Web. The approach that the authors take in this book has been branded as too “theoretical” by some, particularly those on the trading floors, or those antithetic to modeling in the first place.
Detailed rae are given which illustrate how to use reduced form models and market quotes to estimate default probabilities.
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This is a very detailed course on interest rate models. Quantitative Credit Portfolio Management: Overall, this is by far the best interest rate models book in the market. In the latter, a clever choice of gauge can make calculations a lot easier.