Interest Rate Swaps and Their Derivatives A

Interest Rate Swaps and Their Derivatives is unique in that it is written by an experienced trader who has traded swaps, options and exotics. As a result, Sadr aims to bridge the gap between the theory of these instruments and actually using them in day-to-day life. He has written the book for practitioners in the field of interest rate derivatives (traders, marketers, operations). The book covers the main "rates" products: swaps, options (cap/floors, euro swaptions), CMS products, and Bermudan callables. The book emphasizes the exotics/structured-notes area, which is currently the most challenging part of the market, since their pricing and risk issues are difficult to understand and implement. Rather than focus on the mathematics, Sadr uses simple settings and illustrations to show real results and insights.

Amir Sadr, PhD, has experience as a quant, trader, financial software developer, and academic in fixed income markets. He traded options and exotics at HSBC in New York from 2005 to 2006 and traded at the proprietary desk for Greenwich Capital Markets (GCM) for four years prior to that. Sadr also has experience at Morgan Stanley as a vice president in the derivatives products group where he traded interest rate derivatives and exotics. Since 1996, Sadr has served as an adjunct professor at New York University in the Department of Finance and Accounting.

Preface
öRates" Market
Background
Book Structure
Acknowledgements
Author Biography
List of Symbols and Abbreviations
Cash, Repo, And Swap Markets.
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
Swaps: It's Still About Discounting
Discount Factor Curve, Zero Curve
Forward Rate Curve
Par Swap Curve
Construction of the Swap/Libor Curve
Interest Rate Swaps in Practice
Market Instruments
Swap Trading - Rates or Spreads
Swap Spreads
Risk, PV01, Gamma Ladder
Calendar Rules, Date Minutiae
Separating Forward Curve from Discount Curve
Forward Curves for Assets
Implied Forward Rates
Float/Float Swaps
Libor/Libor Basis Swaps
Overnight Indexed Swaps (OIS)
Interest Rate Flow Options.i
Derivatives Pricing: Risk-Neutral Valuation
European Style Contingent Claims
1-Step Binomial Model
From 1 time-step to 2
From 2 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
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
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
Interest Rate Exotics.
Short-Rate Models
A Quick Tour
Dynamics to Implementation
Lattice/Tree Implementation
BDT Lattice Model
Hull-White, Black-Karasinski Models
Simulation Implementation
Bermudan-Style Options
Bellman's Equation - Backward Induction
Bermudan Swaptions
Bermudan Cancelable Swaps, Callable/Puttable Bonds
Bermudan-Style Options in Simulation Implementation
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
Multi-Factor Models
HJM Framework Typically Leads to Non-Recombining Trees
Forward-Measure Lens
Numeraires are Arbitrary
Forward Measures
BGM/Jamshidian Results
Di“erent Measures for Di“erent Rates
Classic" or \New Improved": Pick Your Poison!
In Search of \The" Model
Migration to Full Term Structure Models
Implementation Era
Model versus Market: Liquidity and Concentration Risk
Complexity Risk
Remaining Challenges
Taylor Series Expansion
Function of One Variable
Function of Several Variables
Ito's Lemma: Taylor Series for Di“usions
Mean-Reverting Processes
Normal Dynamics
Log-Normal Dynamics
Girsanov's Theorem and Change of Numeraire
Continuous-Time, Instantaneous-Forwards HJM Framework
BGM Result
Bibliography
Index
Table of Contents provided by Publisher. All Rights Reserved.

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Interest Rate Swaps and Their Derivatives A Practitioner's Guide

Summary

Author Biography

Table of Contents

Supplemental Materials