Interest rate models -- theory and practice (Q5936853)

The authors, most appropriately, question themselves in the introduction as to why a new book in financial mathematics, and, in particular, about interest rate theory. Are not there enough books on the subject, covering all possible approaches? And they answer themselves in (approximately) the following very fitting terms: ``Interest rates models-theory and practice'' is a book about the theory of option pricing of interest rate instruments and about the real life practical implementation of the theory, or in other terms, the book deals with the science of \(f\) options on interest rates, and about its engineering. The book addresses the theory carefully, with no unnecessary ado, and describes many of the difficulties one has to deal with when applying the theory to practice. In the text, the models used in practice are first derived mathematically and then analysed in detail. (Almost) all practical models, ranging all the way from Hull-White (or extended Vasicek) and its tree implementation up to libor market model are described. And afterwards the authors address specific questions on how to implement these models, by answering questions like: Which model to use for this instrument or the other? What happens when your model produces negative rates? When is it appropriate to use a model with humped volatilities? How to calibrate to market data both of caps and ofswaptions? Which size step should be used? How to handle numerically and, simultaneously, early exercise and path dependence? The book is definitely up to the task of presenting the theory and the practice, the science and the engineering, of the quantitative aspects of modelling the evolution of interest rates aiming at pricing and hedging interest rates instruments, and it is definitely useful for a quant involved in interest rates.