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Interest Rate Models - Theory and Practice

With Smile, Inflation and Credit

Auteurs

Damiano Brigo

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Paramètres

1038pages
37 heures de lecture

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The 2nd edition of this successful book introduces several new features. The calibration discussion of the basic LIBOR market model has been significantly enhanced, analyzing the effects of the swaptions interpolation technique and exogenous instantaneous correlation on calibration outputs. It includes a discussion on historical estimation of the instantaneous correlation matrix and rank reduction, alongside a LIBOR-model consistent swaption-volatility interpolation technique. Sections addressing the smile issue in the LIBOR market model have expanded into multiple new chapters. Additional sections cover local-volatility dynamics and stochastic volatility models, with a detailed examination of the uncertain-volatility approach. Real market data calibration examples are now included. The growing interest in hybrid products has prompted new chapters, particularly focusing on pricing inflation-linked derivatives. The final chapters delve into credit, highlighting the increasing importance of Credit Derivatives such as Credit Default Swaps (CDS), CDS Options, and Constant Maturity CDS, which relate closely to interest-rate modeling. Counterparty risk in interest rate payoff valuation is also addressed, reflecting recent developments in the Basel II framework.