back to Damiano Brigo’s professional page. Interest Rate Models: Theory and Practice – With Smile, Inflation and Credit. (, 2nd Ed. ) by Damiano Brigo. Interest Rate Models – Theory and Practice: With Smile, Inflation and Credit. Front Cover · Damiano Brigo, Fabio Mercurio. Springer Science. The 2nd edition of this successful book has several new features. The calibration discussion of the basic LIBOR market model has been enriched considerably.
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International Statistical Institute short book reviews. 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.
The modeling of interest rates is intereat a multi-million dollar business, and this is likely to grow in the years ahead as worries about quantitative easing, government budgets, housing markets, and corporate borrowing have shown no sign of abatement.
Examples of calibrations to real market data are now considered. 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.
It practife shown that every contingent claim is attainable in a complete market. I also admire the style of writing: Arguments are given as to whether all choices of kernel can result in viable interest rate models.
Since Credit Derivatives are increasingly fundamental, and since in the reduced-form modeling framework much of prxctice technique involved is analogous to interest-rate modeling, Credit Derivatives — mostly Credit Default Swaps CDSCDS Options and Constant Maturity CDS – are discussed, building on the intersst short rate-models and market models introduced earlier for the default-free market.
The old sections devoted to the smile issue in the LIBOR market model have been enlarged into a new part. 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 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.
The 2nd edition of this successful book has several new features.
The authors’ applied background allows for numerous comments on why certain models have or have not made it in practice. This book was read and studied between the dates of September and July Ensuring that interest rates remain positive is thought of as an important side constraint by many modelers, who point to the large negative rates that may occur in Gaussian models of interest rates.
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. This is a very detailed course on interest rate models.
Interest Rate Models Theory and Practice
Interest Rate Models – Theory and Practice: For those who have a sufficiently strong mathematical background, this book is a must. For credit risk, the defaultable zero coupon bond is the analog of the zero coupon bond for interest rate curves.
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 modfls.
Examples of calibrations to real market data are now considered. I really enjoyed the experience having him as my Professor. 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. Written more from an academic’s than practitioner’s perspective, it is nevertheless useful for someone who has a need for the underlying theory.
One of the major challenges any financial engineer has to cope with is the practical implementation of mathematical models for pricing derivative mdels If this value drops below a certain level, the firm is taken to be insolvent. Their model can essentially be characterized by an integral representation for discount bonds in terms of a family of kernel functions.
Sample text from the book prefacefeaturing a description by chapter. Techniques of variance reduction in Monte Theoyr simulation inteerest well-known, and the authors discuss one of these, the control variate technique.
The goal is then to find conditions under which arbitrage is impossible, i. The 2nd edition of this successful book has several new features.
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Praise for the first edition. This option is attainable by dealing only in a stock and a bond. The time evolution of the riskless bond is merely exponential, as mkdels, but that of the risky security is random according to a geometric Brownian motion.
A special focus here is devoted to the pricing of inflation-linked derivatives. From one side, the authors would like to help quantitative analysts and advanced traders handle interest-rate derivatives with a sound theoretical apparatus. The theory is interwoven with detailed numerical examples.
The three final new chapters of this second edition are devoted to credit. Hughston, and which is discussed in one of the appendices in the book. It’s great as expected.