Interest Rate Risk Modeling : The Fixed Income Valuation Course

Interest Rate Risk Modeling : The Fixed Income Valuation Course
By Sanjay K. Nawalkha, Gloria M. Soto, Natalia K. Beliaeva
Publisher: Wiley
Number Of Pages: 396
Publication Date: 2005-05-09
ISBN-10 / ASIN: 0471427241
ISBN-13 / EAN: 9780471427247
Binding: Hardcover

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.

Download Description:

“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. “

Summary: The praise for this book speaks for itself
Rating: 5

After reading this book I must admit that the praise for this book is well-deserved.

“This first book in the fixed income valuation course provides a solid, up-to-date introduction to the field of interest rate risk, and covers all bases in leading up to the complex area of fixed-income option models. For the more experienced, this is an excellent guide to the state of the art, and provides models coupled with software to make the practical use of the ideas therein feasible.”
SANJIV RANJAN DAS, Associate Professor of Finance, Santa Clara University, Coeditor, Journal of Derivatives.

“The trilogy on the fixed income course is the first one with hands on Excel/VBA software for fixed income professionals. These are terrific books for all fixed income practitioners.”
FRANK J. FABOZZI, Frederick Frank Adjunct Professor of Finance, Yale University, Editor of the Journal of Portfolio Management.

“The authors are commended in expositing the many interest rate risk measures in a coherent way. This book describes the theories, implementations and applications of these measures with clarity and rigor. Further, the software assists students and practitioners alike to learn about them effectively.”
THOMAS HO, President, Thomas Ho Company, Coauthor of The Oxford Guide to Financial Modeling.

“Not only does the book provide an excellent explanation of interest rate risk models, but the included software is very comprehensive and easy to use. Excel is used as the user interface throughout. It is very easy to change the inputs and recalculate a wide variety of interest rate risk models. With simple menu choices, the student or practitioner can explore many different hedging or speculation strategies. The consistent approach used in the whole trilogy of fixed income books/software is a huge advantage.”
CRAIG HOLDEN, Associate Professor of Finance, Indiana University, Bloomington, Author of Excel Modeling in Investments.

“A pedagogical and comprehensive treatment of interest rate dynamics. Extremely helpful to understand the theory and build applications.”
NASSIM NICHOLAS TALEB, Author of Dynamic Hedging: Managing Vanilla and Exotic Options, and Fooled by Randomness.

Summary: Not worth the price
Rating: 1

There are some formulas, but no explanation how they are arrived at and how they can be applied in practice. I tried to get some sense of it from the VBA programs but the programs are password protected. If you want to learn how to apply the theory in real practice, the following are better alternatives: Advanced modelling by Jackson and Staunton; Implementing derivatives models by Clewlow and Strickland; Analysing & interpreting the yield curve by Choudhry.

Summary: The Best Book on IRR Models with Professional Software
Rating: 5

This book comes with professional quality software on virtually all major models for measuring and managing interest rate risk. The multifactor duration vector models for FRAs and caps/swaptions using the LIBOR models (LFM and LSM) can be used to determine the notional amounts in various interest rate derivative products under arbitrary non-parallel shifts. A lot of this material is new and never been published in journal articles. The authors also give realistic IRR models for Eurodollar futures and Treasury futures that take into account realistic contractual features such as “cheapest to deliver bond” and “conversion factors” and the fact that Treasury futures are discount instruments while Eurodollar futures are add-on instruments. The software computes positions in all kinds of derivatives within seconds. I also liked the last chapter that has the only fast “single summation” solution I have seen on first passage probability models of default-prone coupon bonds given by Longstaff and Schwartz [1995, JOF] and Collin-Dufresne and Goldstein [2002, JOF]. The original solutions had time-consuming double-summations, and this solution also corrects the error in the original paper by Longstaff and Schwartz. The typo in the famous Black and Cox [1976] model is also corrected.

Overall the book is truly comprehensive and explains the materials using easy to understand examples. These examples can be further explored using the user-friendly software. I think the only typo I have found is in Figure 8.2 – the authors have promised to put the new corrected Figure on the website www.fixedincomerisk.com. This website is cool – it has a forum for all three books by these authors (two are forthcoming) and the authors have committed to answer questions themselves using a managed discussion forum. So, you get some free help too! 

Free Download links:

http://mihd.net/spzq5v
http://rapidshare.com/files/75397765/0471427241.rar