Interest Rate Derivatives Explained: Volume 2

1. Front Matter

   Pages i-xxvii

   PDF

2. Products

   1. Front Matter

      Pages 1-1

      PDF

   2. Vanilla Bonds and Asset Swaps

      • Jörg Kienitz, Peter Caspers

      Pages 3-13

   3. Callability Features

      • Jörg Kienitz, Peter Caspers

      Pages 15-37

   4. Structured Finance

      • Jörg Kienitz, Peter Caspers

      Pages 39-44

   5. More Exotic Features and Basis Risk Hedging

      • Jörg Kienitz, Peter Caspers

      Pages 45-55

   6. Exposures

      • Jörg Kienitz, Peter Caspers

      Pages 57-70

3. Volatility

   1. Front Matter

      Pages 71-71

      PDF

   2. The Heston Model

      • Jörg Kienitz, Peter Caspers

      Pages 73-85

   3. The SABR Model

      • Jörg Kienitz, Peter Caspers

      Pages 87-121

4. Term Structure Models

   1. Front Matter

      Pages 123-123

      PDF

   2. Term Structure Models

      • Jörg Kienitz, Peter Caspers

      Pages 125-137

   3. Short Rate Models

      • Jörg Kienitz, Peter Caspers

      Pages 139-173

   4. A Gaussian Rates-Credit Pricing Framework

      • Jörg Kienitz, Peter Caspers

      Pages 175-181

   5. Instantaneous Forward Rate Models and the Heath–Jarrow–Morton Framework

      • Jörg Kienitz, Peter Caspers

      Pages 183-195

   6. The Libor Market Model

      • Jörg Kienitz, Peter Caspers

      Pages 197-219

5. Back Matter

   Pages 221-248

   PDF

This book on Interest Rate Derivatives has three parts. The first part is on financial products and extends the range of products considered in Interest Rate Derivatives Explained I. In particular we consider callable products such as Bermudan swaptions or exotic derivatives. The second part is on volatility modelling. The Heston and the SABR model are reviewed and analyzed in detail. Both models are widely applied in practice. Such models are necessary to account for the volatility skew/smile and form the fundament for pricing and risk management of complex interest rate structures such as Constant Maturity Swap options. Term structure models are introduced in the third part. We consider three main classes namely short rate models, instantaneous forward rate models and market models. For each class we review one representative which is heavily used in practice. We have chosen the Hull-White, the Cheyette and the Libor Market model. For all the models we consider the extensions bya stochastic basis and stochastic volatility component. Finally, we round up the exposition by giving an overview of the numerical methods that are relevant for successfully implementing the models considered in the book.

 

• Financial engineering
• Derivatives
• Finance
• Risk Management
• Banking
• Capital market
• Investments
• Securities
• Volatility
• investments and securities

• Bonn, Germany

  Jörg Kienitz

• Erkelenz, Germany

  Peter Caspers

Jörg Kienitz is Partner at Quaternion Risk Management where he is responsible for business development, pricing models research and risk management consulting. Prior to this he was a Director at Deloitte and Co-lead of the quant team. Before joining Deloitte he was Head of Quantitative Analytics at Deutsche Postbank AG where he was involved in developing/implementing models for pricing, hedging and asset allocation. He lectures at university level on advanced financial modelling and implementation at the universities of Cape Town (UCT) and Wuppertal (BUW) where he is Adjunct Associate Professor, respectively Assistant Professor. Before that he lectured in the part time Masters programme at Oxford University on Financial Mathematics. He is a speaker at a number of major quant finance conferences including Global Derivatives and WBS Fixed Income. Jörg holds a PhD in Probability Theory from Bielefeld University.

Peter Caspers is senior quantitative analyst at Quaternion Risk Management. He has over 17 years of experience as a quant in different banks and is a co-author of QuantLib, an open-source library for quantitative finance. He holds a degree in mathematics and computer science.

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