New sections on local-volatility dynamics, and on stochastic volatility models Counterparty risk in interest rate payoff valuation is also considered, motivated by the recent Basel II framework developments. Damiano Brigo, Fabio Mercurio. Counterparty risk in interest rate payoff valuation is also considered, motivated Interest Rate Models Theory and Practice. By Damiano Brigo, Fabio Mercurio. is based on the book. ”Interest Rate Models: Theory and Practice – with Smile, Inflation and Credit” by D. Brigo and F. Mercurio, Springer-Verlag, (2nd ed.

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Readers interested in counterparty risk will be exposed to an interesting assertion, namely that the value of a generic claim that has counterparty risk is always modelss than the value of a similar claim whose counterparty has a probability of default equal to zero. Amazon Second Chance Pass it on, trade it in, give it a second life.

Professional Area of Damiano Brigo’s web site

The fact that the authors combine a strong mathematical finance background with expert practice knowledge they both work in a bank contributes hugely to its format. Counterparty risk in interest rate payoff valuation is also considered, motivated by the recent Basel II framework developments. The intefest that describe each type of products and what could be used to price them is also very complete and intuitive.

The authors give a rigorous formulation of this assertion by proving a general jodels risk pricing formula. This is probably one of the best IR model books out there by the time it was published The bearer will obtain a payment at expiry, the size of which depends on the prior price history.

From one side, the authors would like to help quantitative analysts and advanced traders handle interest-rate derivatives with a sound theoretical apparatus. The same goes for a choice of numeraire for pricing a contingent claim, and the authors give a briyo overview of what is involved in doing so. Since it is a monograph, there are no exercises, but readers will find ample opportunities to fill in some of the calculations or speculate on some of the many questions that the authors list in the beginning to motivate the book.


Overall, this is mercurip far the best interest rate models book in the market. This simultaneous attention to theory and inyerest is difficult to find in other available literature.

It is true that every month a new book on financial modeling or on mathematical finance comes out, but this is a good one. One model that particularly stands out in this regard is due to B. Advances in Financial Machine Learning. Share your thoughts with other customers.

Top Reviews Most recent Top Reviews. What I’d like to see more is about more about the bridge from theory to implementation, and some practical hedging adjustments from the models. The calibration must then be done simultaneously when this is not the case.

This book was read and studied between the dates of September and July Interestingly, the authors devote a part of the book to the connection between interest rate models and credit derivatives, wherein they argue that credit derivatives are not only interesting in and of themselves, but that the tools used to model interest rate swaps can be applied to credit default swaps to a large degree. Positive interest short-rate models can therefore be used to do default modeling.

Fabio Mercurio

In this discussion the authors focus on a portfolio consisting of riskless security bond and a risky security stock that pays no dividend. The calibration discussion of the basic LIBOR market model has been enriched considerably, with an analysis of the impact of bbrigo swaptions interpolation technique and of the exogenous instantaneous correlation on the calibration outputs.

But the Vasicek model allows negative interest rates and is mean reverting. The author did a good balance between theory and practice. The book is very complete about all the models in literature, from 1 factor model all the way to Libor Market models and SABR. Praise for the first and second editionswhere short reviews or comments merdurio colleagues are reported.


Write a customer review. Praise for the first edition. The three final new chapters of this second edition are devoted to credit. For analytical modeling, the Vasicek model is usually the first one discussed in the literature, and this book is no exception.

The lack of an economic interpretation for the default event is to be contrasted with term structure models, and the authors discuss this in detail. Discover Prime Book Box for Kids. A clear benefit of the approach presented in this book is that practice can help to appreciate theory thus generating a feedback that is one of the most intriguing aspects of modeling and more generally of scientific investigation. Interest Rate Models – Theory and Practice. One person found this helpful.

His class is really fantastic as well as the book he wrote. Their model can essentially be characterized by an integral representation for discount bonds in terms of a family of kernel functions. NawalkhaGloria M. Extended table of contentswhere the extended table of contents is available. One of these, the Cox-Ingersoll-Ross CIR model, is analytically tractable and preserves the positivity of the instantaneous short rate.

Beliaeva Limited preview – Page 1 of 1 Start over Page 1 of 1. Ships from and sold by Amazon. Of particular importance is the appearance of copulas in chapter 21, which have been criticized lately for their alleged role in the “financial crisis”.

Especially, I would recommend this to students …. The fast-growing interest for hybrid products has led to a new chapter. The authors want to go beyond this model by searching for one that will reproduce any observed term structure of interest rates but that will preserve analytical tractability.