Average Reviews:
(More customer reviews)This book is a must for any financial engineer interested in learning the HMJ model of interest-rate instruments. The HMJ model is an arbitrage model based on the instaneous forward rates. The book starts with a brief introduction to fixed-income securities followed by a rigorous treatment of binomial trees. Claim replication is then addressed through trading strategies. The instruments treated are coupon bonds,forward,futures,options and exotics. I found useful to derive the mathematical statements as I was reading the book to acquaint myself with the notation and the mathematical concepts. The beauty of the model is worth the effort. It would have been nice to include a more thorough treatment of mortage-backed securities and derivatives subject to default. Other models ( Ho-Lee , Hull-White , Vasicek ) are also briely mentioned. The parameter estimation also deserved more space since a correct estimation is more important to pricing than a clever choice of the model. To conclude: a recommended introduction to HJM + additional readings will allow the financial engineer to grasp the fundamentals of the fixed-income universe.
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This book teaches the basics of fixed-income securities in a way that, unlike competitive texts, requires a minimum of prerequisites.While other books focus heavily on institutional details of the bond market, all of which could easily be learned "on the job," Jarrow is more concerned with presenting a coherent theoretical framework for understanding all basic models.His unified approach-the Heath Jarrow Morton model-under which all other models are presented as special cases, enhances understanding while avoiding repetition.The author's pricing model is widely used in today's securities industry. In this revised edition, the author has added new chapters to enrich coverage, and has modified the order of chapters slightly to smooth the progression of material from simple to complex.Online material will be available with the text, replacing the diskette included in the first edition; lecture notes for instructors will be available on PowerPoint slides.MathWorks has provided a free online, limited version of the MATLAB's financial derivatives toolbox, with which users of the book can apply the theory presented in each chapter.
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