Basic concepts of stochastic modeling in interest rate theory, As a standard reference on interest rate theory I recommend. [Brigo and Mercurio()]. The 2nd edition of this successful book has several new features. The calibration discussion of the basic LIBOR market model has been enriched considerably. New sections on local-volatility dynamics, and on stochastic volatility models have been Counterparty risk in interest rate payoff valuation is also considered, .
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The authors’ applied background allows for numerous comments on why certain models have or have not made it in practice.
The 2nd edition of this successful book has several new features.
Interest Rate Models Theory and Practice – Damiano Brigo, Fabio Mercurio – Google Books
Praise for the Second edition. Especially, I would recommend this to students …. Dynamic Term Structure Modeling: New chapters on local-volatility dynamics, and on stochastic volatility models have been added, with a thorough treatment of the recently developed uncertain-volatility approach. One has to address a number of practical issues that are often neglected in the theory, such as the choice of a satisfactory model, the calibration of the selected model to a set of market data, the implementation of efficient routines, and so on.
Brivo text is no doubt my favourite on the subject of interest rate modelling. Examples of calibrations to real market data are now considered. The fact that the authors combine a strong mathematical finance background with expert practice knowledge they intrrest work in a bank contributes hugely to its format. Therefore, this book aims both at explaining rigorously how models work in theory and at suggesting how to implement them for concrete pricing.
This is the book on interest rate models and should proudly stand on the bookshelf of every quantitative finance practitioner and student involved interst interest rate models. From one side, the authors would like to help quantitative analysts and advanced traders handle interest-rate derivatives with a sound theoretical apparatus.
Damiano BrigoFabio Mercurio. 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. A clear benefit of the approach presented in this book is that practice can help to appreciate theory thus generating a feedback that is one of the most intriguing aspects of modeling and more generally of scientific investigation.
This is an area that is rarely covered by books on mathematical finance. Since Credit Derivatives are increasingly fundamental, and since in the reduced-form modeling framework much of the technique involved brifo analogous to interest-rate modeling, Credit 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.
Modela text from the book prefacefeaturing a description by chapter. This is the publisher web site.
In Mathematical Reviews, d. Praise for the first edition. Advanced undergraduate students, graduate students and researchers should benefit as well from seeing how some sophisticated mathematics can be used in concrete financial problems. One of the major challenges any financial engineer has to cope with is the practical implementation of mathematical models for pricing derivative securities: The fast-growing interest for hybrid products has led to interst new chapter.
Examples of calibrations to real market data are now considered. References to bgigo book Dynamic Term Structure Modeling: SotoNatalia A.
Interest Rate Models Theory and Practice
The calibration discussion of the basic LIBOR market model has been enriched considerably, with an analysis of the impact interst the swaptions interpolation technique and of the exogenous instantaneous correlation on the calibration outputs.
A final Appendix “discussion” with a trader yields insight into current and future development of the field.
Thus the book can help quantitative analysts and advanced traders price and hedge interest-rate derivatives with a sound theoretical apparatus, explaining which models can be used in practice for some major concrete problems. Interest Rate Models – Theory and Practice.
Professional Area of Damiano Brigo’s web site
I also admire the style of writing: The old sections devoted to the smile issue in the LIBOR market model have been enlarged into a new part. 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. Interest Rate Models rbigo Theory and Practice: