Interest Rate Modeling: Theory and Practice, Second Edition

Containing many results that are new, or which exist only in recent research articles, Interest Rate Modeling: Theory and Practice, 2nd Edition portrays the theory of interest rate modeling as a three-dimensional object of finance, mathematics, and computation. It introduces all models with financial-economical justifications, develops options along the martingale approach, and handles option evaluations with precise numerical methods.

• Presents a complete cycle of model construction and applications, showing readers how to build and use models











• Provides a systematic treatment of intriguing industrial issues, such as volatility and correlation adjustments











• Contains exercise sets and a number of examples, with many based on real market data











• Includes comments on cutting-edge research, such as volatility-smile, positive interest-rate models, and convexity adjustment











• New to the 2nd edition: volatility smile modeling; a new paradigm for inflation derivatives modeling; an extended market model for credit derivatives; a dual-curved model for the post-crisis interest-rate derivatives markets; and an elegant framework for the xVA.