Term-Structure Models: A Graduate Course

✍ Scribed by Damir Filipovic (auth.)

• Publisher: Springer-Verlag Berlin Heidelberg
• Year: 2009
• Tongue: English
• Leaves: 259
• Series: Springer Finance
• Edition: 1
• Category: Library

✦ Synopsis

Changing interest rates constitute one of the major risk sources for banks, insurance companies, and other financial institutions. Modeling the term-structure movements of interest rates is a challenging task. This volume gives an introduction to the mathematics of term-structure models in continuous time. It includes practical aspects for fixed-income markets such as day-count conventions, duration of coupon-paying bonds and yield curve construction; arbitrage theory; short-rate models; the Heath-Jarrow-Morton methodology; consistent term-structure parametrizations; affine diffusion processes and option pricing with Fourier transform; LIBOR market models; and credit risk.

The focus is on a mathematically straightforward but rigorous development of the theory. Students, researchers and practitioners will find this volume very useful. Each chapter ends with a set of exercises, that provides source for homework and exam questions. Readers are expected to be familiar with elementary Itô calculus, basic probability theory, and real and complex analysis.

✦ Table of Contents

Front Matter....Pages I-XII
Introduction....Pages 1-3
Interest Rates and Related Contracts....Pages 5-28
Estimating the Term-Structure....Pages 29-57
Arbitrage Theory....Pages 59-77
Short-Rate Models....Pages 79-92
Heath–Jarrow–Morton (HJM) Methodology....Pages 93-103
Forward Measures....Pages 105-116
Forwards and Futures....Pages 117-122
Consistent Term-Structure Parametrizations....Pages 123-141
Affine Processes....Pages 143-195
Market Models....Pages 197-223
Default Risk....Pages 225-243
Back Matter....Pages 245-256

✦ Subjects

Quantitative Finance; Probability Theory and Stochastic Processes; Applications of Mathematics; Game Theory, Economics, Social and Behav. Sciences