Product Description

Praise for Dynamic Term Structure Modeling

"This book offers the most comprehensive coverage of term-structure models I have seen so far, encompassing equilibrium and no-arbitrage models in a new framework, along with the major solution techniques using trees, PDE methods, Fourier methods, and approximations. It is an essential reference for academics and practitioners alike."
--Sanjiv Ranjan Das
Professor of Finance, Santa Clara University, California, coeditor, Journal of Derivatives

"Bravo! This is an exhaustive analysis of the yield curve dynamics. It is clear, pedagogically impressive, well presented, and to the point."
--Nassim Nicholas Taleb
author, Dynamic Hedging and The Black Swan

"Nawalkha, Beliaeva, and Soto have put together a comprehensive, up-to-date textbook on modern dynamic term structure modeling. It is both accessible and rigorous and should be of tremendous interest to anyone who wants to learn about state-of-the-art fixed income modeling. It provides many numerical examples that will be valuable to readers interested in the practical implementations of these models."
--Pierre Collin-Dufresne
Associate Professor of Finance, UC Berkeley

"The book provides a comprehensive description of the continuous time interest rate models. It serves an important part of the trilogy, useful for financial engineers to grasp the theoretical underpinnings and the practical implementation."
--Thomas S. Y. Ho, PHD
President, Thomas Ho Company, Ltd, coauthor, The Oxford Guide to Financial Modeling

Product Details

• Amazon Sales Rank: #95388 in Books
• Published on: 2007-06-04
• Original language: English
• Number of items: 1
• Binding: Hardcover
• 683 pages

Review
"This book offers the most comprehensive coverage of term-structure models I have seen so far, encompassing equilibrium and no-arbitrage models in a new framework, along with the major solution techniques using trees, PDE methods, Fourier methods, and approximations. It is an essential reference for academics and practitioners alike." —Sanjiv Ranjan Das, Professor of Finance, Santa Clara University, California, coeditor, Journal of Derivatives

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

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

"The book provides a comprehensive description of the continuous time interest rate models. It serves an important part of the trilogy, useful for financial engineers to grasp the theoretical underpinnings and the practical implementation."—Thomas S. Y. Ho, PHD, President, Thomas Ho Company, Ltd, coauthor, The Oxford Guide to Financial Modeling

From the Inside Flap

Dynamic Term Structure Modeling, the second book in the trilogy of the Fixed Income Valuation Course, shows you how to value interest rate derivatives and credit derivatives using a variety of affine, quadratic, HJM, and LIBOR market models. Using a new taxonomy, this book classifies all term structure models as either fundamental models, or preference-free single-plus, double-plus, and triple-plus models. Filled with in-depth insights and expert advice, this book shows you how to price basic interest rate and credit derivative products, such as Treasury and Eurodollar futures, 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 rules and heuristic derivations over rigorous theoretical developments and technical proofs, Dynamic Term Structure Modeling makes the technology of valuing fixed income derivatives accessible to both seasoned financial professionals and academics. Whether you're a head of a fixed income quant group, an analyst at a fixed income hedge fund, a manager of a pension fund, or a VP at an insurance company, the intuitive and rigorous understanding of dynamic term structure models is crucial for you to value, hedge, and innovate a variety of fixed income securities and their derivatives.

With intuitive explanations and fully developed examples, Dynamic Term Structure Modeling provides new transforms for building efficient trees under state-dependent volatility models, stochastic volatility models, and jump-diffusion models for pricing American options; and describes fast computational methods, such as the Fourier inversion method (including the FFT) and the cumulant expansion method, for valuing interest rate derivatives and credit derivatives, under a variety of affine, quadratic, and LIBOR market models.

Dynamic Term Structure Modeling is also accompanied by an informative CD-ROM, which contains various Excel®/VBA® spreadsheets that will enhance your understanding of the term structure models outlined throughout these pages. This software allows for the valuation of interest rate derivatives by building interest rate trees for low-dimensional affine models, as well as computing solutions using quasi-analytical formulas for higher-dimensional affine, quadratic, and LIBOR market models. Though most of the programs require coding in advanced scientific languages—such as C and C++—the final output is presented in user-friendly Excel/VBA spreadsheets. This will allow you to instantly work with a variety of term structure models in order to price caps, swaptions, credit default swaps, and many other fixed income derivatives.

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

From the Back Cover

Praise for Dynamic Term Structure Modeling

"This book offers the most comprehensive coverage of term-structure models I have seen so far, encompassing equilibrium and no-arbitrage models in a new framework, along with the major solution techniques using trees, PDE methods, Fourier methods, and approximations. It is an essential reference for academics and practitioners alike."
—Sanjiv Ranjan Das
Professor of Finance, Santa Clara University, California, coeditor, Journal of Derivatives

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

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

"The book provides a comprehensive description of the continuous time interest rate models. It serves an important part of the trilogy, useful for financial engineers to grasp the theoretical underpinnings and the practical implementation."
—Thomas S. Y. Ho, PHD
President, Thomas Ho Company, Ltd, coauthor, The Oxford Guide to Financial Modeling

Customer Reviews

DTSM formula
I came across this book in my library and decided to buy it after browsing it. What I like about it is that it gives all the explicit formula for analytical affine DTSM, such as multifactor Vasicek model, multifactor CIR model, and mixed Vasicek-CIR model, as well as the risk neutral models (+, ++ and +++) models. A lot of detail in close to 700 pages. Very useful as a reference. The book also gives tree implementations of DTSM but personally I have not used them.

A must have...
Great! You have to buy this book to believe what is in it. This book has the only demonstration of CIR tree that is 100% correct and does not use any ad-hoc tricks as used by other authors like John Hull, Peter Ritchken, and Brigo-Mercurio, who do not allow the short rate to hit the zero boundary. In fact, the book shows using numerical simulations how their tree is better than the original tree by Nelson and Ramaswamy, both in efficiency and accuracy. Since a basic CIR tree is needed for all two factor extensions, and their applications to reduced-form credit models etc., this demonstration with numerical example is really helpful. The book also derives double-plus models (i.e., which fit the shape of the initial yield curve, like HJM models) for every known short rate model from multifactor affine and quadratic to CEV models. So in one shot it gives you a huge variety of HJM type models with analytical solutions and trees. In fact, double-plus short rate models are all that one needs, as they have all the advantages of HJM paradigm, without any limitations of the typical HJM models (e.g., non-Markovian, etc.). Then there are interesting new models, like new jump trees for jump-extended Vasicek and jump-extended CIR. Under the jump-extended CIR, jumps can occur in both directions (positive and negative) and yet short rate is always non-negative. I thought this was impossible, since other authors can only allow positive jumps, or limit the size of negative jumps. The book has analytical solutions for Eurodollar futures, caps, and swaptions for almost every multifactor affine and quadratic model, including HJM type extensions of these models, and under a variety of LIBOR market models. The results on Fourier inversion for pricing caps and cumulant expansion techniques for pricing swaptions are more complex, but explained as well. The book also has analytical closed-form formulas for CDS pricing under a variety of HJM-type multifactor affine and quadratic models. Finally, it also has really good explanations of the different versions of the LIBOR market model, including LSM, LFM, displaced diffusion LIBOR model, stochastic volatility (SV) LIBOR model, and the jump-extended SV LIBOR model. Also, some interesting discussion on how correlations between forward rates don't matter under LIBOR model, but do matter under short rate models for pricing caps. The Excel spreadsheets can price a range of interest rate using analytical solutions, Fourier methods, cumulant expansion methods, and trees. But the book does not give the pseudo code. Also, if you want solutions of interest rate exotics (captions, trigger swaps, etc.) - this book does not provide them. These are covered well in a book by Brigo-Mercurio, which is a great book on interest rate modeling, but more demanding mathematically than this book.

Invaluable Resource for Fixed Income Professionals
I have been using this book for the past 2 years and I have found it to be invaluable in pricing, valuation and risk analysis of a large number of fixed income instruments. Accurate valuation is at the core of our business and this is book is now the standard reference for me and my quant team. The depth of analysis and also the quality of editing is superior to most other books on this subject.
This is the first book that gives HJM-type models corresponding to virtually every multifactor affine, Gaussian, and quadratic model. In fact, these extensions are better than the original HJM models, because unlike HJM models, the extensions given here have much analytical tractability, while allowing consistency with the initially observed term structure.
The software allows valuing a variety of interest rate-dependent securities and their derivatives like bonds, interest rate swaps, FRAs, forward contracts, T-bill futures contracts, Eurodollar/Euribor futures contracts, interest rate caps, floors, collars, European payer swaptions, European receiver swaptions, American swaptions, American call options on coupon bonds, American put options on coupon bonds, credit default swaps, etc., using a variety of techniques including analytical formulas, numerical trees, Fourier inversion method, and the cumulant-expansion method. Since authors create Excel user functions using Excel/VBA at the frontend and C, C++ running at the backend, these excel functions can be simply cut and paste anywhere on the spreadsheet.
No other book in fixed income comes even close in providing such user-friendly spreadsheets on such an extensive collection of models. At present, I am personally using the LIBOR market model spreadsheet to create perturbations for the volatility surface implied by swaption prices.
I would like to point out a total misrepresentation by another reviewer "Ganeshaj1 Gns" who claims that "many of the examples were taken from the first book's spreadsheet." The two books together have 17 spreadsheets out of which ONLY one spreadsheet on the "estimation of term structure" is common to both the books. However, this spreadsheet is essential to both books, as both books require that the term structure be estimated using either the Nelson and Siegel method or Cubic-Spline method. Note that 16 of the 17 spreadsheets belong either only to the first book or only to the second book, BUT NOT TO BOTH! Hence, except for a single spreadsheet that is necessary in both books, all other spreadsheets in the two books are totally different. Further, the second book has 28 fully developed examples in various chapters, which though less than the first book, still are plenty to work with.
I believe if readers are looking to understand complex fixed income models, and want the ability to run excel simulations using software etc., then no other books are comparable with the two books by these authors in the fixed income space. Similar to Hull's book, the authors do not provide the software code of their models, however.