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 | | Interest Rate Modelling: Financial Engineering by Jessica James, Nick Webber ISBN-10: 0471975230 ISBN-10: 0-471-97523-0 ISBN-13: 9780471975236 ISBN-13: 978-0-471-97523-6 Hardcover 2000-01-15 Wiley Find Lowest Price |
Editorials | ||
Product Description 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. | ||
Reviews | ||
Good explained yield curve fitting List different way of yield curve fitting method, and good explain why B-spline is good. Also term structure on general manifold is interesting, although a review don't think it's useful. | ||
Could have been very good. A new edition could earn 5 stars. While very ambitious and containing some very good material, I think there are too many errors, typos, and gaps in this book. For example, the derivation of equation (3.20) on page 43, a not insignificant result on swap rates, is embarrasingly wrong. They make 2 fundamental errors in equations (3.15) and (3.16) and appear fortunate to arrive at (3.20) which is correct. These errors are not mere typos. Their examples related to the concept of a filtration on top of page 58 appear to be wrong. Elsewhere in the book notation is often used inconsistently and without adequate definition. There are also gaps. For example, when discussing volatility structures in Section 16.1, they use equation (16.6) (which is correct) in a number of examples, but I could not find where they actually derived that equation. (It should have been in the HJM chapter) but was not there. I like the fact that they wanted to include a chapter on term structures from the macro-economic perspective. Unfortunately this chapter is difficult to read, provides no macroeconomic intuition and again appears to omit too many details. For example, the description of the IS-LM-Phillips model is inadequate and either should be expanded or dropped from future editions. Likewise, the description of the Sommer model is inadequate. Equation (11.3) in the statement of Sommer's Theorem would appears to be wrong at first sight. The left-hand-side of that equation is known by time t, but the right-hand-side would appear to be UNknown by time t. This apparnet contradiction can be explained but the authors never comment on such matters, often making the material more difficult to follow. Chapter 17 on GMM and MLE methods is quite nice but again, not everything is adequately explained. The examples of Section 17.2.5, for example, seem to assume that certain variables are observable in the market place (e.g. volatility, v_t in equation 17.38) but this seems inapproriate as v_t would generally be unobservable. Indeed this is stated in Chapter 18. Again, however, James and Webber provide no clarification whatsoever of this issue, leaving the reader to wonder what exactly was done. Some sections are also poorly motivated. For example, Section 16.4, "Processes on Manifolds", in the chapter on Principal Components Analysis is not motivated properly. While the material is quite straightforward to read (though they should define terms like diffeomorphism if they want to use them in a financial engineering text), it is not clear why you need to bring in the language of manifolds and tangency spaces etc. After all, where is this material used in the example of Section 16.4.5? It seems to me that the examples of Section 16.4 are interesting and do lead to new types of term structure models, but that this material could be presented without the jargon of manifolds. Again, I may be wrong but then I would blame the authors for not writing clearly. A final criticism is that it seems on occasion that the authors are writing about material that they are not particularly familiar with, all for the sake of being encyclopedic. This thought crossed my mind when reading the chapter on Monte Carlo simulation. For example, with reference to equations (13.11)-(13.13) it would have taken very little to point out that Jensen's Inequality implies that some estimated security prices will be biased. Indeed the authors hint at this in the final paragraph on page 350 but do not make the point. There are many other examples of these errors / typos / gaps in the book. And as far as I know there is no list of errata available. I will not mention the many good things in this book as other reviewers have already done so. However, I think their praise has been excessive and feel that 3 stars is appropriate. | ||
A real must ! As a math grad student who is interested in the term structure modelling, I found that this book is really useful! It just tells you everything about interest rate modelling,not just for the no-arbitrage modelling issue, they even have a chapter about the macroeconomic foundation for interest rate fluctuation! The math used in this book is very concise without too much measure theory twaddle,Everyone who works in this field should have a copy. It's a real must! | ||
A must-have encyclopedia on term structure modeling I have spent a number of years in building & implementing models for interest-rate-dependent claims, but should admit: I learned more from this book. I view it as an encyclopedia on the subject, in which the authors (never heard their names before - what a shame!) have done an excellent job on reviewing hundreds of publications. The theory of term structure modeling has been grown to a separate subject - thanks to Hull and White, Jamshidian, HJM, BGM, Hughston - among main contributors. You can find all methods in one place and in a very accesible form. For example, HJM is described better and simpler than in the author's original paper. Most models are reviewed with practical implementation in mind. It is not a "first book" on "introduction" on the subject; it is rather a good desk reference for prepared professionals. | ||
Extraordinary There are plenty of books on fixed income mathematics. This one is extraordinary. It is simultaneously practical, theoretically sophisticated and a pleasure to read. The treatment of term-structure models, including HJM, is the most accessible I have seen anywhere. There is a lot of information on yield curve building. This includes both bootstrapping and more recent research in parameterised curves. There are plenty of topics that other books might label "beyond the scope of ...", but James and Webber jump right in, with meaty discussions of the Kalman filter, lattice methods of valuation and GARCH models. Despite all the theory, the authors are always in touch with practical details. They take into account stub dates, and are precise about day counts. These are obviously practitioners! | ||