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Modelling Fixed Income Securities and Interest Rate Options (2nd Edition) 2nd Edition

4.4 out of 5 stars 11 customer reviews
ISBN-13: 978-0804744386
ISBN-10: 0804744386
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Editorial Reviews

Review

Review of the First Edition
"Interest-rate risk management is generally perceived as one of the most technical areas in modern finance. The sheer number of different, rather cumbersome and somewhat abstract, models that exist to price and hedge interest-rate-sensitive claims, has intimidated all but the most determined academicians and practitioners. This unfortunate perception of the subject will be reversed for most who read Robert A. Jarrow's new book . . . [in which] he has packaged his knowledge and insight into a form that anyone can understand. . . . It is a book targeted to the advanced MBA student, the Ph.D. student, and the technical Wall Street crowd. Each audience should be pleased with it. . . . It is the best book in the interest-rate pricing area."—Journal of Finance


"The Second Edition is written in a style that makes it invaluable to a wide audience. For the specialist, it provides a clear and concise discussion of virtually every aspect of fixed income modeling—from model construction through to implementation and estimation. For the newcomer, it provides a 'from the ground up' approach with an introduction to traded securities, theory, modeling and application."—Andrew Jeffrey, Yale School of Management


"One feature of the revised edition that I find particularly appealing to instructors and students is that each chapter starts with an example demonstrating the new concepts in the chapter. This is very useful for MBA students. The revision is carefully written and well organized, with an emphasis on risk management."—Zsuzsanna Fluck, Department of Finance, Eli Broad Graduate School of Management, Michigan State University

From the Inside Flap

This book teaches the basics of fixed-income securities in a way that, unlike competitive texts, requires a minimum of prerequisites. While other books focus heavily on institutional details of the bond market, all of which could easily be learned “on the job,” Jarrow is more concerned with presenting a coherent theoretical framework for understanding all basic models. His unified approach—the Heath Jarrow Morton model—under which all other models are presented as special cases, enhances understanding while avoiding repetition. The author’s pricing model is widely used in today’s securities industry.
In this revised edition, the author has added new chapters to enrich coverage, and has modified the order of chapters slightly to smooth the progression of material from simple to complex. Online material will be available with the text, replacing the diskette included in the first edition; lecture notes for instructors will be available on PowerPoint slides. MathWorks has provided a free online, limited version of the MATLAB’s financial derivatives toolbox, with which users of the book can apply the theory presented in each chapter.

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Product Details

  • Hardcover: 368 pages
  • Publisher: Stanford Economics and Finance; 2 edition (July 1, 2002)
  • Language: English
  • ISBN-10: 0804744386
  • ISBN-13: 978-0804744386
  • Product Dimensions: 6.1 x 0.8 x 9.2 inches
  • Shipping Weight: 1.3 pounds (View shipping rates and policies)
  • Average Customer Review: 4.4 out of 5 stars  See all reviews (11 customer reviews)
  • Amazon Best Sellers Rank: #1,127,661 in Books (See Top 100 in Books)

Customer Reviews

Top Customer Reviews

Format: Hardcover
This book is a must for any financial engineer interested in learning the HMJ model of interest-rate instruments. The HMJ model is an arbitrage model based on the instaneous forward rates. The book starts with a brief introduction to fixed-income securities followed by a rigorous treatment of binomial trees. Claim replication is then addressed through trading strategies. The instruments treated are coupon bonds,forward,futures,options and exotics. I found useful to derive the mathematical statements as I was reading the book to acquaint myself with the notation and the mathematical concepts. The beauty of the model is worth the effort. It would have been nice to include a more thorough treatment of mortage-backed securities and derivatives subject to default. Other models ( Ho-Lee , Hull-White , Vasicek ) are also briely mentioned. The parameter estimation also deserved more space since a correct estimation is more important to pricing than a clever choice of the model. To conclude: a recommended introduction to HJM + additional readings will allow the financial engineer to grasp the fundamentals of the fixed-income universe.
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Format: Hardcover
This book will definitely replace all the books on interest rate modeling- Brigo Murcurio etc. The book starts at an elementary level, explains every details of the concept, and then develop the subject matter one needs to know to be a pro in interest rate modeling. Even the simple concepts like duration, convexity are clearly explained that many other books take pages, and even then not very clear. Buy it, Read it! After all you will be learning from a master! The clarity and the writing style are simply great! Good job Prof. Jarrow!
BTW: Neither Prof.Jarrow knows me nor I know him personally
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By A Customer on December 7, 2003
Format: Hardcover
This book is at its best when explaining the theory. Jarrow provides lots of very explicit examples that really help to illuminate the ideas. Unfortunately, the reader is left to fend for himself when it comes to implementing the theory. The author simply breezes over how to estimate and calibrate these models. There is a rich--but abstruse--literature on how to apply HJM models. This book would be greatly improved if it covered this aspect of the topic with the same care and detail as is devoted to the theoretical segment of the book.
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By A Customer on February 11, 2003
Format: Hardcover
Excellent job on the detail analysis of fixed income models, accessible to non-mathematician, no stochastic calculus involved. this book is more focused than Tuckman's book. this is absolutely more easy reading than all other fixed income model books out there. read this one, you will be on the way to "martingale methods in financial modelling". also recommend "fixed income analytics".
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Format: Hardcover Verified Purchase
The Heath Jarrow and Morton model is key to accurate and "sensible" interest rate simulation as part of over all enterprise risk management. Data from the US Treasury market over the last 50 years shows clearly that there are 6-10 factors driving interest rates, yet many risk managers are using legacy risk systems that simulate interest rate movements based on one factor alone--implying that all rates move up or down together. This is true in the U.S. market only 6% of the time in the last 50 years. Bob Jarrow's book shows in a very practical way how to model random interest rate movements in a way that is both accurate (i.e. driven by multiple factors) and sensible (no arbitrage possible). A brute force monte carlo simulation of interest rates would not be accurate in most cases because as Jarrow shows once you know the volatility of interest rates and zero coupon bond prices, the mean of the monte carlo is completely determined. This is because of the "no arbitrage" constraints. After 35 years in risk management, I found this book to be extraordinarily useful. I recommend that one work carefully through the examples starting in chapter 4 of the HJM "bushy tree" for 1, 2, and 3 factors. Chapter 15 contains the key formulas on "how to do it," particularly equations 15.17 and 15.19 (which are equivalent in meaning). The entire book is Excel friendly and using spreadsheets to confirm the calculations is a very useful aid to understanding.
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Format: Hardcover
I had to read this book as complement for the course I took with Robert Jarrow at the Johnson School of Management. The book is difficult to understant for someone with few derivatives and fixed-income knowledge.The book explains how to price fixed-income derivatives based on the binomial pricing model, and the zero coupon bonds.
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