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Interest Rate Models Theory and Practice

  • Damiano Brigo
  • Fabio Mercurio

Part of the Springer Finance book series (FINANCE)

Table of contents

  1. Front Matter
    Pages I-XXXV
  2. Models: Theory and Implementation

    1. Front Matter
      Pages XXXVII-XXXVII
    2. Damiano Brigo, Fabio Mercurio
      Pages 1-21
    3. Damiano Brigo, Fabio Mercurio
      Pages 23-42
    4. Damiano Brigo, Fabio Mercurio
      Pages 43-125
    5. Damiano Brigo, Fabio Mercurio
      Pages 127-171
    6. Damiano Brigo, Fabio Mercurio
      Pages 173-182
    7. Damiano Brigo, Fabio Mercurio
      Pages 183-282
    8. Damiano Brigo, Fabio Mercurio
      Pages 283-316
    9. Damiano Brigo, Fabio Mercurio
      Pages 317-368
    10. Damiano Brigo, Fabio Mercurio
      Pages 369-374
  3. Pricing Derivatives in Practice

    1. Front Matter
      Pages 375-375
    2. Damiano Brigo, Fabio Mercurio
      Pages 377-419
    3. Damiano Brigo, Fabio Mercurio
      Pages 421-451
    4. Damiano Brigo, Fabio Mercurio
      Pages 453-465
  4. Appendices

    1. Front Matter
      Pages 467-467
    2. Damiano Brigo, Fabio Mercurio
      Pages 469-484
    3. Damiano Brigo, Fabio Mercurio
      Pages 485-486
    4. Damiano Brigo, Fabio Mercurio
      Pages 487-492
    5. Damiano Brigo, Fabio Mercurio
      Pages 493-499
  5. Back Matter
    Pages 501-518

About this book

Introduction

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.

Keywords

Interest rates JEL classification: G12, G13, E43 Stochastic Differential Equations Stochastic calculus arbitrage calculus derivatives differential equation dynamics inflation modeling stochastic differential equation swaps valuation volatility

Authors and affiliations

  • Damiano Brigo
    • 1
  • Fabio Mercurio
    • 1
  1. 1.Banca IMISan Paolo IMI GroupMilanItaly

Bibliographic information

  • DOI https://doi.org/10.1007/978-3-662-04553-4
  • Copyright Information Springer-Verlag Berlin Heidelberg 2001
  • Publisher Name Springer, Berlin, Heidelberg
  • eBook Packages Springer Book Archive
  • Print ISBN 978-3-662-04555-8
  • Online ISBN 978-3-662-04553-4
  • Series Print ISSN 1616-0533
  • Series Online ISSN 2195-0687
  • Buy this book on publisher's site