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by AMIR SADR
Interest Rate Swaps and Their Derivatives: A Practitioner's Guide
Title Page
Copyright Page
Preface
″RATES″ MARKET
BACKGROUND
BOOK STRUCTURE
ACKNOWLEDGMENTS
About the Author
List of Symbols and Abbreviations
PART One - Cash, Repo, and Swap Markets
CHAPTER 1 - Bonds: It′s All About Discounting
TIME VALUE OF MONEY: FUTURE VALUE, PRESENT VALUE
PRICE-YIELD FORMULA
PV01, PVBP, CONVEXITY
REPO, REVERSE REPO
FORWARD PRICE/YIELD, CARRY, ROLL-DOWN
CHAPTER 2 - Swaps: It′s Still About Discounting
DISCOUNT FACTOR CURVE, ZERO CURVE
FORWARD RATE CURVE
PAR-SWAP CURVE
CONSTRUCTION OF THE SWAP/LIBOR CURVE
CHAPTER 3 - Interest Rate Swaps in Practice
MARKET INSTRUMENTS
SWAP TRADING—RATES OR SPREADS
SWAP SPREADS
RISK, PV01, GAMMA LADDER
CALENDAR RULES, DATE MINUTIAE
CHAPTER 4 - Separating Forward Curve from Discount Curve
FORWARD CURVES FOR ASSETS
IMPLIED FORWARD RATES
FLOAT/FLOAT SWAPS
LIBOR/LIBOR BASIS SWAPS
OVERNIGHT INDEXED SWAPS (OIS)
PART Two - Interest-Rate Flow Options
CHAPTER 5 - Derivatives Pricing: Risk-Neutral Valuation
EUROPEAN-STYLE CONTINGENT CLAIMS
ONE-STEP BINOMIAL MODEL
FROM ONE TIME-STEP TO TWO
FROM TWO TIME-STEPS TO...
RELATIVE PRICES
RISK-NEUTRAL VALUATION: ALL RELATIVE PRICES MUST BE MARTINGALES
INTEREST-RATE OPTIONS ARE INHERENTLY DIFFICULT TO VALUE
FROM BINOMIAL MODEL TO EQUIVALENT MARTINGALE MEASURES
CHAPTER 6 - Black′s World
A LITTLE BIT OF RANDOMNESS
MODELING ASSET CHANGES
BLACK-SCHOLES-MERTON/BLACK FORMULAE
GREEKS
DIGITALS
CALL IS ALL YOU NEED
CALENDAR/BUSINESS DAYS, EVENT VOLS
CHAPTER 7 - European-Style Interest-Rate Derivatives
MARKET PRACTICE
INTEREST-RATE OPTION TRADES
CAPLETS/FLOORLETS: OPTIONS ON FORWARD RATES
EUROPEAN-STYLE SWAPTIONS
SKEWS, SMILES
CMS PRODUCTS
BOND OPTIONS
PART Three - Interest-Rate Exotics
CHAPTER 8 - Short-Rate Models
A QUICK TOUR
DYNAMICS TO IMPLEMENTATION
LATTICE/TREE IMPLEMENTATION
BDT LATTICE MODEL
HULL-WHITE, BLACK-KARASINSKI MODELS
SIMULATION IMPLEMENTATION
CHAPTER 9 - Bermudan-Style Options
BELLMAN′S EQUATION—BACKWARD INDUCTION
BERMUDAN SWAPTIONS
BERMUDAN CANCELABLE SWAPS, CALLABLE/PUTTABLE BONDS
BERMUDAN-STYLE OPTIONS IN SIMULATION IMPLEMENTATION
CHAPTER 10 - Full Term-Structure Interest-Rate Models
SHIFTING FOCUS FROM SHORT RATE TO FULL CURVE: HO-LEE MODEL
HEATH-JARROW-MORTON (HJM) FULL TERM-STRUCTURE FRAMEWORK
DISCRETE-TIME, DISCRETE-TENOR HJM FRAMEWORK
FORWARD-FORWARD VOLATILITY
MULTIFACTOR MODELS
HJM FRAMEWORK TYPICALLY LEADS TO NONRECOMBINING TREES
CHAPTER 11 - Forward-Measure Lens
NUMERAIRES ARE ARBITRARY
FORWARD MEASURES
BGM/JAMSHIDIAN RESULTS
DIFFERENT MEASURES FOR DIFFERENT RATES
″CLASSIC″ OR ″NEW IMPROVED″: PICK YOUR POISON!
CHAPTER 12 - In Search of ″The″ Model
MIGRATION TO FULL-TERM STRUCTURE MODELS
IMPLEMENTATION ERA
MODEL VERSUS MARKET: LIQUIDITY AND CONCENTRATION RISK
COMPLEXITY RISK
REMAINING CHALLENGES
APPENDIX A - Taylor Series Expansion
APPENDIX B - Mean-Reverting Processes
APPENDIX C - Girsanov′s Theorem and Change of Numeraire
Notes
Index
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