Dynamic Term Structure Modeling: The Fixed Income Valuation Course & CD-ROM / Edition 1

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Overview

Dynamic Term Structure Modeling, the second book in the trilogyof the Fixed Income Valuation Course, shows you how to valueinterest rate derivatives and credit derivatives using a variety ofaffine, quadratic, HJM, and LIBOR market models. Using a newtaxonomy, this book classifies all term structure models as eitherfundamental models, or preference-free single-plus, double-plus,and triple-plus models. Filled with in-depth insights and expertadvice, this book shows you how to price basic interest rate andcredit derivative products, such as Treasury and Eurodollarfutures, bond options, interest rate options (e.g., caps, floors,and swaptions), forward rate agreements, interest rate swaps,credit default swaps, credit spread options, and others.

Following an approach that emphasizes basic mathematical rulesand heuristic derivations over rigorous theoretical developmentsand technical proofs, Dynamic Term Structure Modeling makes thetechnology of valuing fixed income derivatives accessible to bothseasoned financial professionals and academics. Whether you're ahead of a fixed income quant group, an analyst at a fixed incomehedge fund, a manager of a pension fund, or a VP at an insurancecompany, the intuitive and rigorous understanding of dynamic termstructure models is crucial for you to value, hedge, and innovate avariety of fixed income securities and their derivatives.

With intuitive explanations and fully developed examples,Dynamic Term Structure Modeling provides new transforms forbuilding efficient trees under state-dependent volatility models,stochastic volatility models, and jump-diffusion models for pricingAmerican options; and describes fast computational methods, such asthe Fourier inversion method (including the FFT) and the cumulantexpansion method, for valuing interest rate derivatives and creditderivatives, under a variety of affine, quadratic, and LIBOR marketmodels.

Dynamic Term Structure Modeling is also accompanied by aninformative CD-ROM, which contains various Excel®/VBA®spreadsheets that will enhance your understanding of the termstructure models outlined throughout these pages. This softwareallows for the valuation of interest rate derivatives by buildinginterest rate trees for low-dimensional affine models, as well ascomputing solutions using quasi-analytical formulas forhigher-dimensional affine, quadratic, and LIBOR market models.Though most of the programs require coding in advanced scientificlanguages—such as C and C++—the final output is presentedin user-friendly Excel/VBA spreadsheets. This will allow you toinstantly work with a variety of term structure models in order toprice caps, swaptions, credit default swaps, and many other fixedincome derivatives.

For more information on the three books in this course,including demo software and special features, please visitwww.fixedincomerisk.com.

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What People Are Saying

From the Publisher
"This book offers the most comprehensive coverage of term-structuremodels I have seen so far, encompassing equilibrium andno-arbitrage models in a new framework, along with the majorsolution techniques using trees, PDE methods, Fourier methods, andapproximations. It is an essential reference for academics andpractitioners alike." —Sanjiv Ranjan Das, Professor ofFinance, Santa Clara University, California, coeditor, Journal ofDerivatives

"Bravo! This is an exhaustive analysis of the yield curvedynamics. It is clear, pedagogically impressive, well presented,and to the point."—Nassim Nicholas Taleb author, DynamicHedging and The Black Swan

"Nawalkha, Beliaeva, and Soto have put together a comprehensive,up-to-date textbook on modern dynamic term structure modeling. Itis both accessible and rigorous and should be of tremendousinterest to anyone who wants to learn about state-of-the-art fixedincome modeling. It provides many numerical examples that will bevaluable to readers interested in the practical implementations ofthese models."—Pierre Collin-Dufresne, Associate Professor ofFinance, UC Berkeley

"The book provides a comprehensive description of the continuoustime interest rate models. It serves an important part of thetrilogy, useful for financial engineers to grasp the theoreticalunderpinnings and the practical implementation."—Thomas S. Y.Ho, PHD, President, Thomas Ho Company, Ltd, coauthor, The OxfordGuide to Financial Modeling

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Product Details

  • ISBN-13: 9780471737148
  • Publisher: Wiley
  • Publication date: 5/4/2007
  • Series: Wiley Finance Series, #180
  • Edition description: Includes CD-ROM
  • Edition number: 1
  • Pages: 683
  • Product dimensions: 6.46 (w) x 9.33 (h) x 2.27 (d)

Meet the Author

Sanjay K. Nawalkha, PhD, is an Associate Professor ofFinance at the Isenberg School of Management, University ofMassachusetts Amherst, where he teaches graduate courses in financetheory and fixed income. He has published extensively in academicand practitioner journals, and is the President and founder ofNawalkha and Associates—a fixed income training andconsulting firm.

Natalia A.Beliaeva, PhD, is an Assistant Professor ofFinance at the Sawyer Business School, Suffolk University, Boston.She also holds a master's degree in computer science (artificialintelligence) from the University of Massachusetts Amherst. Dr.Beliaeva's expertise is in the area of applied numerical methodsfor pricing fixed income derivatives.

Gloria M.Soto, PhD, is a Professor of Applied Economicsand Finance at the University of Murcia, Spain, where she teachescourses in financial markets and institutions and appliedeconomics. Dr. Soto has published extensively in both Spanish andinternational journals in finance and economics, especially in theareas of interest rate risk management and related fixed incometopics.

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Table of Contents

List of Figures.

List of Tables.

CHAPTER 1. A Simple Introduction to Continuous-Time StochasticProcesses.

CHAPTER 2. Arbitrage-Free Valuation.

CHAPTER 3. Valuing Interest Rate and Credit Derivatives: BasicPricing Frameworks.

CHAPTER 4. Fundamental and Preference-Free Single-Factor Gaussian Models.

CHAPTER 5. Fundamental and Preference-Free Jump-ExtendedGaussian Models.

CHAPTER 6. The Fundamental Cox, Ingersoll, and Ross Model withExponential and Lognormal Jumps.

CHAPTER 7. Preference-Free CIR and CEV Models with Jumps.

CHAPTER 8. Fundamental and Preference-Free Two-Factor AffineModels.

CHAPTER 9. Fundamental and Preference-Free Multifactor AffineModels.

CHAPTER 10. Fundamental and Preference-Free QuadraticModels.

CHAPTER 11. The HJM Forward Rate Model.

CHAPTER 12. The LIBOR Market Model.

References.

About the CD-ROM.

Index.

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