How to build a framework for forecasting interest rate market movements With trillions of dollars worth of trades conducted every year in everything from U.S. Treasury bonds to mortgage-backed securities, the U.S. interest rate market is one of the largest fixed income markets in the world. Interest Rate Markets: A Practical Approach to Fixed Income details the typical quantitative tools used to analyze rates markets; the range of fixed income products on the cash side; interest rate movements; and, the derivatives side of the business. Emphasizes the importance of hedging and quantitatively managing risks inherent in interest rate trades Details the common trades which can be used by investors to take views on interest rates in an efficient manner, the methods used to accurately set up these trades, as well as common pitfalls and risks?providing examples from previous market stress events such as 2008 Includes exclusive access to the Interest Rate Markets Web site which includes commonly used calculations and trade construction methods Interest Rate Markets helps readers to understand the structural nature of the rates markets and to develop a framework for thinking about these markets intuitively, rather than focusing on mathematical models
With the collapse of the Bretton Woods system, any pretense of a connection of the world's currencies to any real commodity has been abandoned. Yet since the 1980s, most central banks have abandoned money-growth targets as practical guidelines for monetary policy as well. How then can pure "fiat" currencies be managed so as to create confidence in the stability of national units of account? Interest and Prices seeks to provide theoretical foundations for a rule-based approach to monetary policy suitable for a world of instant communications and ever more efficient financial markets. In such a world, effective monetary policy requires that central banks construct a conscious and articulate account of what they are doing. Michael Woodford reexamines the foundations of monetary economics, and shows how interest-rate policy can be used to achieve an inflation target in the absence of either commodity backing or control of a monetary aggregate. The book further shows how the tools of modern macroeconomic theory can be used to design an optimal inflation-targeting regime--one that balances stabilization goals with the pursuit of price stability in a way that is grounded in an explicit welfare analysis, and that takes account of the "New Classical" critique of traditional policy evaluation exercises. It thus argues that rule-based policymaking need not mean adherence to a rigid framework unrelated to stabilization objectives for the sake of credibility, while at the same time showing the advantages of rule-based over purely discretionary policymaking.
The first swap was executed over thirty years ago. Since then, the interest rate swaps and other derivative markets have grown and diversified in phenomenal directions. Derivatives are used today by a myriad of institutional investors for the purposes of risk management, expressing a view on the market, and pursuing market opportunities that are otherwise unavailable using more traditional financial instruments. In this volume, Howard Corb explores the concepts behind interest rate swaps and the many derivatives that evolved from them. Corb's book uniquely marries academic rigor and real-world trading experience in a compelling, readable style. While it is filled with sophisticated formulas and analysis, the volume is geared toward a wide range of readers searching for an in-depth understanding of these markets. It serves as both a textbook for students and a must-have reference book for practitioners. Corb helps readers develop an intuitive feel for these products and their use in the market, providing a detailed introduction to more complicated trades and structures. Through examples of financial structuring, readers will come away with an understanding of how derivatives products are created and how they can be deconstructed and analyzed effectively.
"A History of Interest Rates, Fourth Edition presents a readable account of interest rate trends and lending practices spanning over four millennia of economic history. Filled with in-depth insights and illustrative charts and tables, this unique resource provides a broad perspective on interest rate movements - from which financial professionals can evaluate contemporary interest rate and monetary developments - and applies analytical tools, such as yield-curve averaging and decennial averaging, to the data available." "A History of Interest Rates, Fourth Edition offers a highly detailed analysis of money markets and borrowing practices in major economies. It places the rates and corresponding credit forms in context by summarizing the political and economic events and financial customs of particular times and places." "To help you stay as current as possible, this revised and updated Fourth Edition contains a new chapter of contemporary material as well as added discussions of interest rate developments over the past ten years."--BOOK JACKET.
Back Cover ( this section should include endorsements also) As interest rate markets continue to innovate and expand it is becoming increasingly important to remain up-to-date with the latest practical and theoretical developments. This book covers the latest developments in full, with descriptions and implementation techniques for all the major classes of interest rate models - both those actively used in practice as well as theoretical models still 'waiting in the wings'. Interest rate models, implementation methods and estimation issues are discussed at length by the authors as are important new developments such as kernel estimation techniques, economic based models, implied pricing methods and models on manifolds. Providing balanced coverage of both the practical use of models and the theory that underlies them, Interest Rate Modelling adopts an implementation orientation throughout making it an ideal resource for both practitioners and researchers. Back Flap Jessica James Jessica James is Head of Research for Bank One's Strategic Risk Management group, based in the UK. Jessica started life as a physicist at Manchester University and completed her D Phil in Theoretical Atomic and Nuclear Physics at Christ Church, Oxford, under Professor Sandars. After a year as a college lecturer at Trinity, Oxford, she began work at the First National Bank of Chicago, now Bank One, where she still works. She is well known as a speaker on the conference circuit, lecturing on a variety of topics such as VaR, capital allocation, credit derivatives and interest rate modelling, and has published articles on various aspects of financial modelling. Nick Webber Nick Webber is a lecturer in Finance at Warwick Business School. Prior to his academic career, Nick had extensive experience in the industrial and commercial world in operational research and computing. After obtaining a PhD in Theoretical Physics from Imperial College he began research into financial options. His main area of research centres on interest rate modelling and computational finance. He has taught practitioner and academic courses for many years, chiefly on options and interest rates. Front Flap Interest Rate Modelling provides a comprehensive resource on all the main aspects of valuing and hedging interest rate products. A series of introductory chapters reviews the theoretical background, pointing out the problems in using naïve valuation and implementation techniques. There follows a full analysis of interest rate models including major categories, such as Affine, HJM and Market models, and in addition, lesser well known types that include Consol, Random field and Jump-augmented Models. Implementation methods are discussed in depth including the latest developments in the use of finite difference, Lattice and Monte Carlo methods and their particular application to the valuation of interest rate derivatives. Containing previously unpublished material, Interest Rate Modelling is a key reference work both for practitioners developing and implementing models for real and for academics teaching and researching in the field.
An up-to-date look at the evolution of interest rate swaps and derivatives Interest Rate Swaps and Derivatives bridges the gap between the theory of these instruments and their actual use in day-to-day life. This comprehensive guide covers the main "rates" products, including swaps, options (cap/floors, swaptions), CMS products, and Bermudan callables. It also covers the main valuation techniques for the exotics/structured-notes area, which remains one of the most challenging parts of the market. Provides a balance of relevant theory and real-world trading instruments for rate swaps and swap derivatives Uses simple settings and illustrations to reveal key results Written by an experienced trader who has worked with swaps, options, and exotics With this book, author Amir Sadr shares his valuable insights with practitioners in the field of interest rate derivatives-from traders and marketers to those in operations.
This is the eBook of the printed book and may not include any media, website access codes, or print supplements that may come packaged with the bound book. For courses in Actuarial Mathematics, Introduction to Insurance, and Personal/Business Finance. This text presents the basic core of information needed to understand the impact of interest rates on the world of investments, real estate, corporate planning, insurance, and securities transactions. The authors presuppose a working knowledge of basic algebra, arithmetic, and percents for the core of the book: their goal is for students to understand well those few underlying principles that play out in nearly every finance and interest problem. There are several sections that utilize calculus and one chapter that requires statistics. Using time line diagrams as important tools in analyzing money and interest exercises, the text contains a great deal of practical financial applications of interest theory as well as its foundational definitions and theorems. It relies on the use of calculator and computer technology instead of tables; this approach frees students to understand challenging topics without wilting under labor-intensive details.
The 2nd edition of this successful book has several new features. The calibration discussion of the basic LIBOR market model has been enriched considerably, with an analysis of the impact of the swaptions interpolation technique and of the exogenous instantaneous correlation on the calibration outputs. A discussion of historical estimation of the instantaneous correlation matrix and of rank reduction has been added, and a LIBOR-model consistent swaption-volatility interpolation technique has been introduced. The old sections devoted to the smile issue in the LIBOR market model have been enlarged into a new chapter. New sections on local-volatility dynamics, and on stochastic volatility models have been added, with a thorough treatment of the recently developed uncertain-volatility approach. Examples of calibrations to real market data are now considered. The fast-growing interest for hybrid products has led to a new chapter. A special focus here is devoted to the pricing of inflation-linked derivatives. The three final new chapters of this second edition are devoted to credit. Since Credit Derivatives are increasingly fundamental, and since in the reduced-form modeling framework much of the technique involved is analogous to interest-rate modeling, Credit Derivatives -- mostly Credit Default Swaps (CDS), CDS Options and Constant Maturity CDS - are discussed, building on the basic short rate-models and market models introduced earlier for the default-free market. Counterparty risk in interest rate payoff valuation is also considered, motivated by the recent Basel II framework developments.
