Average Reviews:
(More customer reviews)Since there are many examples of investment failures do to ignoring interest rate risk it has become a cliché to say that interest rate modeling is of vast importance in the financial and insurance industry. A perusal of the historical data on interest rates shows that they can fluctuate dramatically, and so the prediction of these fluctuations, and the hedging of investment portfolios against them, is absolutely necessary. Bond and fixed income products are usually the ones that are studied in relation to interest rate risk since it is usually known in advance the terms of future cash flows or coupons. But such knowledge is only part of the story, since an investor needs to know the present value of the securities that are based on these products, and the determination of this value and any future cash flows from the portfolio can therefore be very sensitive to changes in interest rates.
The concept of `duration' is the most popular one for estimating the sensitivity of a cash flow to interest rate changes, and is used in asset-liability management to hedge interest rate risk. For example, for fixed income assets, the Macaulay duration holds that the pricing of a fixed income asset is related to the weighted average time to maturity. Somewhat more sophisticated ideas of duration relate it to the negative of the first derivative of the `price/yield curve'. Both of these concepts of duration assume that cash flows do not change with interest rates, that yield curves are flat, and only parallel shifts in interest rates.
These assumptions are discussed in detail in this book, along with many other concepts and models that analysts and financial engineers need a thorough understanding of in order to be successful in the investment houses, hedge funds, or banks of today. Readers are expected to have some fairly strong mathematical background, especially in the last chapter where the authors discuss the Vasicek model, but to a large degree the mathematics in the book is fairly straightforward. The major minus to the book is the reliance on spreadsheets in the attached CD-ROM. Spreadsheet analysis using EXCEL or some other software (such as SAS) is one item in financial analysis that needs to be put to rest, and fast.
Click Here to see more reviews about: Interest Rate Risk Modeling : The Fixed Income Valuation Course
The definitive guide to fixed income valuation and risk analysis
The Trilogy in Fixed Income Valuation and Risk Analysis comprehensively covers the most definitive work on interest rate risk, term structure analysis, and credit risk. The first book on interest rate risk modeling examines virtually every well-known IRR model used for pricing and risk analysis of various fixed income securities and their derivatives. The companion CD-ROM contain numerous formulas and programming tools that allow readers to better model risk and value fixed income securities. This comprehensive resource provides readers with the hands-on information and software needed to succeed in this financial arena.
0 comments:
Post a Comment