10/01/2011

Interest Rate Modeling. Volume 1: Foundations and Vanilla Models Review

Interest Rate Modeling. Volume 1: Foundations and Vanilla Models
Average Reviews:

(More customer reviews)
About me: I am a trader in rates volatility and have a MS degree in MFE. I have only read the vol 1 of the 3 books so I am only reviewing the vol 1.
The book is more or less seperated into 2 parts: chap 1 to 5 are introductory materials for required math and numerical methods, and chap 6 to 9 are where things gets bit more technical and interesting. To me, if you want to get something out of this book you got to be comfortable with quants stuff, some basics like "Continuous time finance 2" from Shreve is required before you start this book. I found the material in chap6 to 9 interesting and instructive. There are many books about local and stochastic vols but I have yet to find any book that covered the material from head to toe like this book. The style of the writing is theory/proof/remark/example, and the derivations of the proof and formula is not too hard to follow, as long as you have the background as I mentioned before. The author also covered some important results from recent papers in the field, and talked about implementation challenges in numerical methods, which is very detail and I think it provides some coverage of the gap from theory to implementation. I'd love to read more about the details of what the banks used in their desks but I guess the authors would not expose what they really used at their work.
Overall this is a good book for quants. For traders I think vol 1 could be too technical and not much use because it does not cover the pricing and hedging of specific vol products, which is supposed to be in vol 3.

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Table of contents for all three volumes (full details at andersen-piterbarg-book.com)Volume I. Foundations and Vanilla Models Part I. Foundations
Introduction toArbitrage Pricing Theory
Finite Difference Methods
Monte Carlo Methods
Fundamentals of Interest Rate Modelling
Fixed Income Instruments
Part II. Vanilla Models
Yield Curve Construction and Risk Management
Vanilla Models with Local Volatility
Vanilla Models with Stochastic Volatility I
Vanilla Models with Stochastic Volatility II
Volume II. Term Structure Models Part III. Term Structure Models
One-Factor Short Rate Models I
One-Factor Short Rate Models II
Multi-Factor Short Rate Models
The Quasi-Gaussian Model with Local and Stochastic Volatility
The Libor Market Model I
The Libor Market Model II
Volume III. Products and Risk Management Part IV. Products
Single-Rate Vanilla Derivatives
Multi-Rate Vanilla Derivatives
Callable Libor Exotics
Bermudan Swaptions
TARNs, Volatility Swaps, and Other Derivatives
Out-of-Model Adjustments
Part V. Risk management
Fundamentals of Risk Management
Payoff Smoothing and Related Methods
Pathwise Differentiation
Importance Sampling and Control Variates
Vegas in Libor Market Models
Appendix
Markovian Projection


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