New sections on local-volatility dynamics, and on stochastic volatility models Counterparty risk in interest rate payoff valuation is also considered, motivated by the recent Basel II framework developments. Damiano Brigo, Fabio Mercurio. Counterparty risk in interest rate payoff valuation is also considered, motivated Interest Rate Models Theory and Practice. By Damiano Brigo, Fabio Mercurio. is based on the book. ”Interest Rate Models: Theory and Practice – with Smile, Inflation and Credit” by D. Brigo and F. Mercurio, Springer-Verlag, (2nd ed.

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The book is written very well, with calculation steps for the most part included in detail. This filtration can be viewed as essentially a collection of events that occur or not depending on the history of the stock price.

Interest Rate Models – Theory and Practice: The depth and breadth of this book is impressive. Amazon Advertising Find, attract, and engage customers. Physicists who aspire to become financial engineers may find the discussion on the change of intterest to be similar to the “change in gauge” in quantum field theory.

Try the Kindle edition and experience these great reading features: Explore the Home Gift Guide. Of particular importance in this discussion is the role of bdigo Radon-Nikodym derivative, a concept that arises in measure theory, and also the use of Bayes rule for conditional expectations.

The 2nd edition of this successful book has several new features.

Customers who bought this item also bought. Their model can essentially be characterized by an integral representation for discount bonds in terms of a family of kernel functions. In the nercurio, a clever choice of gauge can make calculations a lot easier. This is an area that is rarely covered by books on mathematical finance. Learn more about Amazon Prime. This book was read and studied between the dates of September and July The time evolution of the riskless bond is merely exponential, as expected, but that of the risky security is random according to a geometric Brownian motion.


It perfectly combines mathematical depth, historical perspective and practical relevance. The text is no doubt my favourite on the subject of interest rate modelling. New chapters on local-volatility dynamics, and on stochastic mdrcurio models have been added, with a thorough treatment of mkdels recently developed uncertain-volatility approach.

Foundations and Vanilla Models. Amazon Second Chance Pass it on, trade it in, give it a second life.

Fabio Mercurio

Amazon Rapids Fun briggo for kids on the go. This simultaneous attention to theory and practice is difficult to find in other available literature. Springer; 2nd edition August 2, Language: It is shown that every contingent claim is attainable in a complete market.

Application-based but it still contains useful proof of formulas.

Interest Rate Models Theory and Practice – Damiano Brigo, Fabio Mercurio – Google Books

Extended table of contentswhere the extended table of contents is available. One of the best Quant books. It was primarily the interest of this reviewer in analytical models rather than Monte Carlo simulations, even though there is a thorough discussion of the latter in this book, including the most important topic of the standard error estimation in simulation models.

Really worth buying if you are in to interest models! Examples of calibrations to real market data are now considered. Instead default is modeled by an exogenous jump stochastic process. Examples of calibrations to real market data are now considered. Read more Read less. For analytical modeling, the Vasicek model is usually the first one discussed in the literature, and this book is no exception.


The authors give a brief overview of structural models, emphasizing their similarities to barrier-free option models, but do not treat them in detail in the book, since they do not have any analogues to interest rate models.

Interestingly, the authors devote a part of the book to the connection between interest rate models and credit derivatives, wherein they argue that credit derivatives are not only interesting in and of themselves, but that the tools used to model interest rate swaps can be applied to credit default swaps to a large degree.

Learn more about Amazon Giveaway. One person found this helpful. Techniques of variance reduction in Monte Carlo simulation are well-known, and the authors discuss one of these, the control variate technique.

Praise for the first edition. A special focus here is devoted to the pricing of inflation-linked derivatives. Arguments are given as to whether all choices of kernel can result in viable interest rate models. Especially if you take into account Brigo’s own lecture notes on the homepage [ The book is very complete about all the models in literature, from 1 factor model all the way to Libor Market models and SABR.

Please note that the first edition is out of print and the second will be available in March ISBN