Interest Rate Derivatives Explained

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.