Analytical Finance: Volume II: The Mathematics of Interest Rate Derivatives, Markets, Risk and Valuation

Description

Analytical Finance is a comprehensive introduction to the financial engineering of equity and interest rate instruments for financial markets. Developed from notes from the author’s many years in quantitative risk management and modeling roles, and then for the Financial Engineering course at Mälardalen University, it provides exhaustive coverage of vanilla and exotic mathematical finance applications for trading and risk management, combining rigorous theory with real market application. Coverage includes: • Date arithmetic’s, quote types of interest rate instruments • The interbank market and reference rates, including negative rates• Valuation and modeling of IR instruments; bonds, FRN, FRA, forwards, futures, swaps, CDS, caps/floors and others • Bootstrapping and how to create interest rate curves from prices of traded instruments• Risk measures of IR instruments• Option Adjusted Spread and embedded options• The term structure equation, martingale measures and stochastic processes of interest rates; Vasicek, Ho-Lee, Hull-While, CIR• Numerical models; Black-Derman-Toy and forward induction using Arrow-Debreu prices and Newton–Raphson in 2 dimension• The Heath-Jarrow-Morton framework• Forward measures and general option pricing models• Black log-normal and, normal model for derivatives, market models and managing exotics instruments• Pricing before and after the financial crisis, collateral discounting, multiple curve framework, cheapest-to-deliver curves, CVA, DVA and FVA Front Matter ....Pages i-xxxi Financial instruments (Jan R. M. Röman)....Pages 1-15 Interest Rate (Jan R. M. Röman)....Pages 17-29 Market Interest Rates and quotes (Jan R. M. Röman)....Pages 31-45 Interest Rate Instruments (Jan R. M. Röman)....Pages 47-164 Yield Curves (Jan R. M. Röman)....Pages 165-173 Bootstrapping Yield Curves (Jan R. M. Röman)....Pages 175-225 The Interbank Market (Jan R. M. Röman)....Pages 227-235 Measuring the risk (Jan R. M. Röman)....Pages 237-259 Risk management (Jan R. M. Röman)....Pages 261-278 Option Adjusted Spread (Jan R. M. Röman)....Pages 279-290 Stochastic Processes (Jan R. M. Röman)....Pages 291-305 Term Structures (Jan R. M. Röman)....Pages 307-317 Martingale Measures (Jan R. M. Röman)....Pages 319-326 Pricing of Bonds (Jan R. M. Röman)....Pages 327-332 Term-Structure Models (Jan R. M. Röman)....Pages 333-448 Heath-Jarrow-Morton (Jan R. M. Röman)....Pages 449-462 A new Measure – The Forward Measure (Jan R. M. Röman)....Pages 463-490 Exotic Instruments (Jan R. M. Röman)....Pages 491-497 The Black Model (Jan R. M. Röman)....Pages 499-524 Converibles (Jan R. M. Röman)....Pages 525-528 A New Framework (Jan R. M. Röman)....Pages 529-606 CVA and DVA (Jan R. M. Röman)....Pages 607-620 Market Models (Jan R. M. Röman)....Pages 621-653 A Model for Exotic Instruments (Jan R. M. Röman)....Pages 655-668 Modern Term Structure Theory (Jan R. M. Röman)....Pages 669-675 Pricing Exotic Instruments (Jan R. M. Röman)....Pages 677-713 Back Matter ....Pages 715-728