Dynamic Term Structure Modeling: The Preface

12 Pages Posted: 30 Jul 2007

See all articles by Sanjay K. Nawalkha

Sanjay K. Nawalkha

University of Massachusetts Amherst - Isenberg School of Management

Natalia Beliaeva

Suffolk University - Department of Finance

Gloria M. Soto

University of Murcia - Faculty of Business and Economics

Date Written: April 2007

Abstract

Dynamic Term Structure Modeling, the second book in the trilogy on the Fixed Income Valuation Course, shows how to value interest rate derivatives and credit derivatives using a variety of affine, quadratic, HJM, and LIBOR market models. Using a new taxonomy, this book classifies all term structure models as either fundamental models, or preference-free single-plus, double-plus, and triple-plus models. Filled with in-depth insights and expert advice, this book shows how to price basic interest rate and credit derivative products, such as Treasury and Eurodollar futures, bond options, interest rate options (e.g., caps, floors, and swaptions), forward rate agreements, interest rate swaps, credit default swaps, credit spread options, and others. With intuitive explanations and fully developed examples, this book provides new transforms for building efficient trees under state-dependent volatility models, stochastic volatility models, and jump-diffusion models, for pricing American options, and describes fast computational methods such as the Fourier inversion method (including the FFT) and the cumulant expansion method, for valuing interest rate derivatives and credit derivatives, under a variety of affine, quadratic, and LIBOR market models. This book is also accompanied by an informative CD-ROM, which contains various Excel®/VBA® spreadsheets. This software allows for valuation of interest rate derivatives by building interest rate trees for low-dimensional affine models, as well as computing solutions using quasi-analytical formulas for higher-dimensional affine, quadratic, and LIBOR market models. Though most of the programs require coding in advanced scientific languages, such as C and C++, the final output is presented in user-friendly Excel/VBA spreadsheets.

Keywords: term structure models, caps, swaptions, credit default swaps, credit derivatives

JEL Classification: G10, G11, G12, G13, G14

Suggested Citation

Nawalkha, Sanjay K. and Beliaeva, Natalia and Soto, Gloria M., Dynamic Term Structure Modeling: The Preface (April 2007). Available at SSRN: https://ssrn.com/abstract=1003611 or http://dx.doi.org/10.2139/ssrn.1003611

Sanjay K. Nawalkha (Contact Author)

University of Massachusetts Amherst - Isenberg School of Management ( email )

Amherst, MA 01003-4910
United States
413-687-2561 (Phone)

Natalia Beliaeva

Suffolk University - Department of Finance ( email )

8 Ashburton Place-Beacon Hill
Boston, MA 02108-2770
United States

Gloria M. Soto

University of Murcia - Faculty of Business and Economics ( email )

Spain

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