Interest Rate Modeling

Containing many results that are new, or which exist only in recent research articles, this thoroughly revised third edition of Interest Rate Modeling: Theory and Practice, Third 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.

Features

• 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 smiles 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 Third edition

• Introduction of Fed fund market and Fed fund futures
• Replacement of the forward-looking USD LIBOR by the backward-looking SOFR term rates in the market model, and the deletion of dual-curve market model developed especially for the post-crisis derivatives markets
• New chapters on LIBOR Transition and SOFR Derivatives Markets