Sample text from the book preface , featuring a description by chapter. Extended table of contents , where the extended table of contents is available. Praise for the first and second editions , where short reviews or comments from colleagues are reported. Places on the web where the book can be ordered. One of the major challenges any financial engineer has to cope with is the practical implementation of mathematical models for pricing derivative securities: One has to address a number of practical issues that are often neglected in the theory, such as the choice of a satisfactory model, the calibration of the selected model to a set of market data, the implementation of efficient routines, and so on. Therefore, this book aims both at explaining rigorously how models work in theory and at suggesting how to implement them for concrete pricing.

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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.

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. 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. Skip to main content Skip to table of contents. Advertisement Hide. This service is more advanced with JavaScript available. Definitions and Notation. Pages No-Arbitrage Pricing and Numeraire Change.

Front Matter Pages One-factor short-rate models. Two-Factor Short-Rate Models. Including the Smile in the LFM. Local-Volatility Models. Stochastic-Volatility Models. Uncertain-Parameter Models. Pricing of Inflation-Indexed Derivatives. Inflation-Indexed Swaps. Calibration to market data. Introducing Stochastic Volatility. Pricing Hybrids with an Inflation Component. Introduction and Pricing under Counterparty Risk.

Intensity Models. Back Matter Pages About this book Introduction The 2nd edition of this successful book has several new features. Bocconi University Milano Italy.

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Fabio Mercurio

It seems that you're in Germany. We have a dedicated site for Germany. Authors: Brigo , Damiano, Mercurio , Fabio. The 2nd edition of this successful book has several new features.


Interest Rate Models — Theory and Practice



Interest Rate Models - Theory and Practice


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