This book introduces the mathematics of stochastic interest rate
modeling and the pricing of related derivatives, based on a
step-by-step presentation of concepts with a focus on explicit
calculations. The types of interest rates considered range from
short rates to forward rates such as LIBOR and swap rates, which
are presented in the HJM and BGM frameworks. The pricing and
hedging of interest rate and fixed income derivatives such as bond
options, caps, and swaptions, are treated using forward measure
techniques. An introduction to default bond pricing and an outlook
on model calibration are also included as additional topics.This
third edition represents a significant update on the second edition
published by World Scientific in 2012. Most chapters have been
reorganized and largely rewritten with additional details and
supplementary solved exercises. New graphs and simulations based on
market data have been included, together with the corresponding R
codes.This new edition also contains 75 exercises and 4 problems
with detailed solutions, making it suitable for advanced
undergraduate and graduate level students.
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