Interest Rate Derivatives Explained ─ Products and Markets

The book provides a thorough but concise description of fixed income markets, looking at the business, products and structures and advanced modeling of interest rate instruments. The book is timely in that it describes the many changes the field has seen post 2007 (Multi-Curves Framework and Market Data). It lays the grounds for a solid understanding of the current financial engineering, risk management and trader's knowledge for setting up the fundamental structures, including curve construction and the involved methods, standard fixed income derivative (swaps, fras, fx swaps, cross currency swaps). It then focuses on caps, floors, swaptions, cms and cms spread options – products that involve optionality and as such, cannot be priced from today's yield curve. Basic instruments need volatility. To this end the book considers the set-up for volatilities and again, explains the methodologies applied to understand current market quotes and how to use such quotes to set up a sound framework for risk management and trading. Finally, the book provides an outlook to modern term structure modelling including short rate and market models.

Jorg Kienitz (Bonn, Germany) is head of Quantitative Analytics at Deutsche Postbank AG. He is primarily involved in developing and implementing models for pricing complex derivatives structures and for asset allocation. He also lectures at university level on advanced financial modelling and implementation including the University of Oxford's part-time Masters of Finance course. Jorg works as an independent consultant for model development and validation as well as giving seminars for finance professionals. He is a speaker at the major financial conferences including Global Derivatives, WBS Fixed Income or RISK. Jorg is the member of the editorial board of International Review of Applied Financial Issues and Economics and holds a Ph.D. in stochastic analysis from the University of Bielefeld.