"Containing many results that are new, or which exist only in recent research articles, this thoroughly revised third edition of Interest Rate Modeling: Theory and Practice, Third Edition portrays the theory of interest rate modeling as a three-dimensional object of finance, mathematics, and...

Purpose – The purpose of this paper is to provide a framework of replication pricing of derivatives and identify funding valuation adjustment (FVA) and credit valuation adjustments (CVA) as price components. Design/methodology/approach – The authors propose the notion of bilateral...

Convertible bonds and American warrants commonly contain the provision of the callable feature which allows the issuer to buy back the derivative at a predetermined recall price. Upon recall, by virtue of the early exercise privilege embedded in an American style derivative, the holder may...

In this paper we study a correlation-based LIBOR market model with a square-root volatility process. This model captures downward volatility skews through taking negative correlations between forward rates and the multiplier. An approximate pricing formula is developed for swaptions, and the...

This paper is concerned with option pricing in an incomplete market driven by a jump-diffusion process. We price options according to the principle of utility indifference. Our main contribution is an efficient multi-nomial tree method for computing the utility indifference prices for both...

In this chapter, we define the “inflation forward rates” based on arbitrage arguments and develop a dynamic model for the term structure of inflation forward rates. This new model can serve as a framework for specific no-arbitrage models, including the popular practitioners’ market model...