Interest Rate Derivatives Explained: Volume 2: Term Structure and Volatility Modelling

✍ Scribed by Jörg Kienitz,Peter Caspers (auth.)

• Publisher: Palgrave Macmillan UK
• Year: 2017
• Tongue: English
• Leaves: 261
• Series: Financial Engineering Explained
• Edition: 1
• Category: Library

✦ Synopsis

This book on Interest Rate Derivatives has three parts. The first part is on financial products and extends the range of products considered in Interest Rate Derivatives Explained I. In particular we consider callable products such as Bermudan swaptions or exotic derivatives. The second part is on volatility modelling. The Heston and the SABR model are reviewed and analyzed in detail. Both models are widely applied in practice. Such models are necessary to account for the volatility skew/smile and form the fundament for pricing and risk management of complex interest rate structures such as Constant Maturity Swap options. Term structure models are introduced in the third part. We consider three main classes namely short rate models, instantaneous forward rate models and market models. For each class we review one representative which is heavily used in practice. We have chosen the Hull-White, the Cheyette and the Libor Market model. For all the models we consider the extensions by a stochastic basis and stochastic volatility component. Finally, we round up the exposition by giving an overview of the numerical methods that are relevant for successfully implementing the models considered in the book.

✦ Table of Contents

Front Matter ....Pages i-xxvii
Front Matter ....Pages 1-1
Vanilla Bonds and Asset Swaps (Jörg Kienitz, Peter Caspers)....Pages 3-13
Callability Features (Jörg Kienitz, Peter Caspers)....Pages 15-37
Structured Finance (Jörg Kienitz, Peter Caspers)....Pages 39-44
More Exotic Features and Basis Risk Hedging (Jörg Kienitz, Peter Caspers)....Pages 45-55
Exposures (Jörg Kienitz, Peter Caspers)....Pages 57-70
Front Matter ....Pages 71-71
The Heston Model (Jörg Kienitz, Peter Caspers)....Pages 73-85
The SABR Model (Jörg Kienitz, Peter Caspers)....Pages 87-121
Front Matter ....Pages 123-123
Term Structure Models (Jörg Kienitz, Peter Caspers)....Pages 125-137
Short Rate Models (Jörg Kienitz, Peter Caspers)....Pages 139-173
A Gaussian Rates-Credit Pricing Framework (Jörg Kienitz, Peter Caspers)....Pages 175-181
Instantaneous Forward Rate Models and the Heath–Jarrow–Morton Framework (Jörg Kienitz, Peter Caspers)....Pages 183-195
The Libor Market Model (Jörg Kienitz, Peter Caspers)....Pages 197-219
Back Matter ....Pages 221-248

✦ Subjects

Financial Engineering