Interest Rate Modeling: Theory and Practice, Second Edition, 2nd Edition (Hardback) book cover

Interest Rate Modeling

Theory and Practice, Second Edition, 2nd Edition

By Lixin Wu

CRC Press

494 pages | 96 B/W Illus.

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pub: 2019-02-25
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Containing many results that are new, or which exist only in recent research articles, Interest Rate Modeling: Theory and Practice, 2nd Edition portrays the theory of interest rate modeling as a three-dimensional object of finance, mathematics, and computation. It introduces all models with financial-economical justifications, develops options along the martingale approach, and handles option evaluations with precise numerical methods.


  • Presents a complete cycle of model construction and applications, showing readers how to build and use models
  • Provides a systematic treatment of intriguing industrial issues, such as volatility and correlation adjustments
  • Contains exercise sets and a number of examples, with many based on real market data
  • Includes comments on cutting-edge research, such as volatility-smile, positive interest-rate models, and convexity adjustment
  • New to the 2nd edition: volatility smile modeling; a new paradigm for inflation derivatives modeling; an extended market model for credit derivatives; a dual-curved model for the post-crisis interest-rate derivatives markets; and an elegant framework for the xVA.

Table of Contents

1. The Basics of Stochastic Calculus

2. The Martingale Representation Theorem

3. Interest Rates and Bonds

4. The Heath-Jarrow-Morton Model

5. Short-Rate Models and Lattice Implementation

6. The LIBOR Market Model

7. Calibration of LIBOR Market Model

8. Volatility and Correlation Adjustments

9. Affine Term Structure Models

10. The Market Model for Inflation-Rate Derivatives.

11. Levy Market Model

12. Market Model for Inflation Derivatives Modeling

13. Market Model for Credit Derivatives

14. Dual-Curve Market Models for Post-Crisis Interest Rate Derivatives Markets

15. xVA Definition, Evaluation and Risk Management

About the Author

Lixin Wu is a professor at the Hong Kong University of Science and Technology. Best known in the financial engineering community for his work on market models, Dr. Wu co-developed the PDE model for soft barrier options and the finite-state Markov model for credit contagion.

About the Series

Chapman and Hall/CRC Financial Mathematics Series

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Subject Categories

BISAC Subject Codes/Headings:
MATHEMATICS / Probability & Statistics / General