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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The ratf 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 Also discussed is a hybrid model where tgeory interest rates and stochastic intensities are involved, and the authors show how to calibrate survival probabilities and discount factors separately when there is no correlation between the interest rates and intensities.
Their strategy is to enforce positivity via the discount factor, and doing this in such a way so as to eliminate the possibility of “explosions”, i. 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.
Interest Rate Models Theory and Practice
Fabozzi Series Book English Edition. Thus the book can help quantitative analysts and advanced traders price and hedge interest-rate derivatives pradtice a sound theoretical apparatus, explaining which models can be used in practice for some major concrete problems. The authors show that a market is free of arbitrage if and only modelss there is a martingale measure, and that a market is complete if and only if the martingale measure is unique.
The fast-growing interest for hybrid products has led to a new chapter. Sample text from the book prefacefeaturing a description by chapter.
The fast-growing interest for hybrid products has led to a new chapter. Not really, but the authors do explain how the correlation can be ignored, since it has little impact on credit default swaps. For credit risk, the defaultable zero theoty bond rat the analog of the zero coupon bond for interest rate curves.
The old sections devoted to the smile issue in the LIBOR market model have been enlarged into a new chapter. Physicists who aspire to become financial engineers may find the discussion on the change of numeraire to be similar to the “change in gauge” in quantum field theory. In this discussion the authors focus on a portfolio consisting of riskless security bond and a risky security stock that pays no dividend. The 2nd edition of this successful book has several new features.
For those who have a sufficiently strong mathematical background, this book is a must. A special focus here is devoted to the pricing of inflation-linked derivatives. It’s great as expected.
The goal is then to find conditions under which arbitrage is impossible, i. In the latter, a clever choice of gauge can make calculations a lot easier. It was primarily the interest of this reviewer in analytical models rather than Monte Carlo simulations, even though there is brkgo thorough discussion of the latter in this ihterest, including the most important topic of the standard error estimation in simulation models. practic
Since Credit Derivatives are increasingly fundamental, throry since in the reduced-form modeling framework much of the technique involved is analogous to interest-rate modelingCredit Derivatives — mostly Credit Default Swaps CDSCDS Options and Constant Maturity CDS – are discussed, building on the basic short rate-models and market models introduced earlier for the default-free market.
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. The lack of an economic interpretation wnd the default event is to be contrasted with term structure models, and the authors discuss this in detail. Of particular importance is the appearance of copulas in chapter 21, which prwctice been criticized lately for their alleged role in the “financial crisis”.
I really enjoyed the experience having him as my Professor. Extended table of contentswhere the extended table of contents is available. Moreover, the book can help academics develop a feeling for the practical problems in the market that can be solved with the use of relatively advanced tools of mathematics and stochastic calculus in particular. A discussion of historical estimation of the instantaneous correlation matrix and of rank reduction has been added, and interezt LIBOR-model consistent swaption-volatility interpolation technique has been introduced.
Theoty 2nd edition of this successful book has several new features. A special focus here is devoted to the pricing of inflation-linked derivatives. 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.
Ample space in the book is devoted to a discussion of this model, which is essentially one where one adds a “square root” to the diffusion coefficient. Leia mais Leia menos. The object is to follow the time theoory of the price of these two securities.
Interest-Rate Models: Theory and Practice – Research Portal, King’s College, London
International Statistical Institute short book reviews. With Smile, Inflation and Credit. A discussion of historical estimation of the instantaneous correlation matrix and of rank reduction has been added, mode,s a LIBOR-model consistent swaption-volatility interpolation technique has been introduced.
Praise for the first edition. The fast-growing interest for hybrid products has led to new chapters. 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 as well from seeing how some sophisticated mathematics can be used in concrete financial problems. Structural models on the other hand are tied to economic factors, namely the value of the firm, i.
The authors give an overview of these entities for the curious reader but do not use them in the book.