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Interest Rate Models - Theory and Practice: With Smile, Inflation and Credit Hardcover – Sep 26 2007
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From the reviews:
SHORT BOOK REVIEWS
"The text is no doubt my favorite on the subject of interest rate modeling. It perfectly combines mathematical depth, historical perspective and practical relevance. 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. I also admire the style of writing: at the same time concise and pedagogically fresh. The authors’ applied background allows for numerous comments on why certain models have (or have not) made it in practice. The theory is interwoven with detailed numerical examples…For those who have a sufficiently strong mathematical background, this book is a must."
From the reviews of the second edition:
"The book ‘Interest Rate Models – Theory and Practice’ provides a wide overview of interest rate modeling in mathematical depth. … The authors found a good approach to present a mathematically demanding area in a very clear, understandable way. The book will most likely become … one of the standard references in the area. … if one were to buy only one book about interest rate models, this would be it." (David Skovmand and Michael Verhofen, Financial Markets and Portfolio Management, Vol. 21 (1), 2007)
"This is the book on interest rate models and should proudly stand on the bookshelf of every quantitative finance practitioner and student involved with interest rate models. If you are looking for one reference on interest rate models then look no further as this text will provide you with excellent knowledge in theory and practice. … is simply a must for all. Especially, I would recommend this to students … . Overall, this is by far the best interest rate models book in the market." (Ita Cirovic Donev, MathDL, May, 2007)
"This is a very detailed course on interest rate models. Its main goal is to construct some kind of bridge between theory and practice in this field. From one side, the authors would like to help quantitative analysts and advanced traders handle interest-rate derivatives with a sound theoretical apparatus. … Advanced undergraduate students, graduate students and researchers should benefit from reading this book and seeing how some sophisticated mathematics can be used in concrete financial problems." (Yuliya S. Mishura, Zentralblatt MATH, Vol. 1109 (11), 2007)
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Top Customer Reviews
I've followed a similar path from control to finance, and having worked with interest rate models, I couldn't help but order this Brigo-Mercurio book. I had high expectations 'cause these two guys are working in a bank on the real thing.
Sure enough I'm not disappointed.
1-factor models are handled with great care, a ton of formulas and recipes are given. I've never seen this kind of analysis of pricing with Gaussian 1-f models. The new upgrade of the CIR model is interesting and accurate. "CIR++" is now my favorite 1-f model. I like the treatment of lognormal 1-f models and the explanation of Monte Carlo and trees -- the flow-chart for Bermudan swaptions is crystal clear! Plots of market implied structures and volatility calibration are useful additions.
The chapter on 2-f extensions has one of the best discussions on volatility, and two tons of useful formulas/recipes. Two dimensional trees!
The HJM chapter size is OK. I agree - the useful models embedded in HJM are short rate models and market models.
Market models - these three chapters alone are worth the book. You'll find yourself nodding as you read the guided tour. They make it look easy all the time. The exposition is focused, clear, intuitive, detailed. There's also new stuff, just check the calibration discussion!Read more ›
and the theoretical viewpoint such as the one in Musiela & Rutkowski.
The authors, themselves PhDs in quantitative finance/ applied maths, wrote this book while working as quants in an Italian bank and this first hand contact with the market gave them a
practical view on the subject which markes this book very interesting.
The book contains a "rational" catalogue of models used in practice ( as opposed to models which are impossible to implement!).
In contrast with academic books on interest rate modeling which deal with HJM formulation, there is a lot of emphasis here on LIBOR and Swap market models
(BGM -Jamshidian models) which reflects the current market practice. This is a positive point since there are not many books with details on implementing and using these "market models".
Part II: Interest rate models in practice is particularly useful because it deals with implementation and calibration which, as any practitioner knows, are important and usually delicate issues.
However calibration issues are dealt with somewhat lightly, especially recent developments on modeling cap/swaption smiles
are not included here.
This book can also be used for a graduate level/PhD course on interest rate models.
There are a lot of numerical examples in the book and mathematics is kept to the necessary level while keeping the
approach both rigorous and understandable.
Overall, it is one of the best books written on the subject.
I highly recommend it to PhD students, quants and researchers interested in this field.
Anyone interested in implementing the LMM/BGM/MSS model in practice is well advised to read it.
I would just say that this is certainly a must have in the field.
Most recent customer reviews
This book is clear and concise with nicely chosen notations. Easy and happy to read.
This is one of the fews books I that I read from beginning to end.
This is the best book available on interest rate models. Very detailed. Much more focused and readable than Rebonato's book. More pragmatic and explicit than Musiela and Rutkowski. Read morePublished on Dec 13 2002
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