Customer Reviews

Interest Rate, Term Structure, and Valuation Modeling

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I was pleasantly surprised by the clarity of the writing by most of the authors in this book. As its title suggests, this book has a solid discussion of interest rate models, term structure, and different valuation models for interest rates. After reading this book, you should become familiar with the various interest rate models, such as Cox-Ingersoll-Ross and Health-Jarrow-Morton. The book goes through many topics (e.g., modeling, yield curves, term structure, valuation, path dependency, etc.) with sufficient depth and it provides many examples that are relatively easy to follow.

In addition, the discussion of interest rate factor models is also interesting, and I like the part where they relate some of the factor models for interest rates to their counterparts in equities (as factor models for equities are much more common, e.g. APT, CAPM). Moreover, modeling of interest rates is an interesting subject, although it can get quite complex. I think this book handles it pretty well. There is a discussion of the use of the lattice method (i.e., trees) and Monte Carlo simulation. There is also an excellent discussion of the significance of mean reversion.

However, because the chapters of this book are written by different authors, there are two major issues that I find quite annoying. First, the discussion in some chapters gets repeated in other chapters, thereby wasting time and space (i.e., paper). It is highly annoying to read a discussion of interest rate models in multiple chapters, but I guess on the bright side it helps you remember the models. Second, the writing styles can vary substantially. There are some chapters that are written really well, while other chapters are just the opposite. In particular, I didn't like the chapter on Measuring the Plausibility of Interest Rate Shocks.

This is not the first book I own for interest rate models. It strikes good balance of depth and ease-of-reading, at least enjoyed by me from an developer, not a modeler perspective.

I bought it via Amazon mktplace, but surprisingly, the seller is Amazon itself, the price is only 25USD. The book came as brand new, I cannot argue for a better price.

Lastly, thumb down to the recent NYS charges "Amazon" tax. It is a hate tax, imposed on all readers, shamelessly taking 8.625% fun out of reading.