,+1st+Edition.jpg)
The credit and sovereign debt crises have fundamentally changed the way participants in the global financial markets perceive credit risk. The effects of this change have been studied by many leading experts in Mathematical Finance, but to date there is no single volume that combines the results of this research and presents them at a level suited for practitioners and students alike. In market practice this fundamental market change is most directly visible from significant bases throughout the interest rate world, especially tenor bases, cross-currency bases, and bond-cds bases. This means that the curve used for discounting is no longer the curve used for Libor (aka Fixing Curve or Forwarding Curve).
In the last two years a consensus has emerged that this multi-curve pricing is now standard.The crises have also altered the perception of banks and governments - they are no longer regarded as zero-risk counterparties. Now both sides of an uncollateralized trade need to consider, and price in, the risk that the other defaults: my CVA is your DVA. Even collateralization does not remove pricing problems: when you post collateral how much do you have to pay for it? This FVA is not symmetric in many ways: whatever it costs you to source it, your counterparty will only pay you OIS. Even worse is that your funding costs are unlikely to be the same as those of all your counterparties.Discounting, Libor, CVA and Funding: Interest Rate and Credit Pricing is the first book to illustrate new ways of pricing interest rate and credit products in the post-crisis markets. Written by two seasoned practitioners, it will enable the readers to understand the many different versions of credit and basis spreads, and to build the appropriate discount curves that take the these spreads into account so that collateralized derivatives will be priced correctly.
The authors guide the reader through the complexity added by OIS discounting and multi-curve pricing as well as CVA, DVA and FVA. Derivatives do not exist in a vacuum. Regulators world-wide have reacted strongly to the crises with the introduction of Basel III. Hitherto quants could ignore capital costs and charges, but as of January 2013 this world is gone. Discounting, Libor, CVA and Funding explains details of Basel III that are important for pricing, especially around the CVA VaR and default exposure capital charges.This book will be required reading for quantitative practitioners who need to keep up-to-date with the latest developments in derivatives pricing, and will also be of interest to academic researchers and students interested in how instruments are priced in practice.
Review
"The ongoing economic situation is pushing researchers to re-discuss and update the fundamentals of financial modeling. Writing an encyclopedic book on financial modeling for exotics based on the risk free rate, a unique discount curve, no credit risk and no liquidity costs would be neither relevant nor realistic in 2012. This is not such a book. The reader will find here an interesting tackling of current and relevant problems such as multi-curve modeling and credit valuation adjustments, with a very interesting discussion of closeout and especially goodwill, which cannot be found anywhere else to the best of this endorser's knowledge. Funding costs, hints at systemic risk, regulation, and Basel III are also considered. It is great to find a quantitatively detailed analysis of such aspects in a single book, and readers who are open-minded and attentive to the current challenges posed by the market will find this book to be informative, relevant, pleasant to read, and even entertaining." - Prof. Damiano Brigo, Head of the Mathematical Finance Research Group, Imperial College, London, and author of Interest Rate Models: Theory and Practice (Springer) and Credit Models and the Crisis (Wiley).
About the Author
DR. CHRIS KENYON (London, UK) is a Director at Lloyds Banking Group in the front office Quantitative Research – CVA / FVA group. Previously he was head quant for counterparty risk at Credit Suisse, and at DEPFA Bank PLC he was Head of Structured Credit Valuation (post crisis), working on pricing model development and validation and market risk. He has also held positions at IBM Research and Schlumberger, where he applied real options pricing to everything from offshore rig lease extension options to variable volume outsourcing contracts. Chris holds a PhD in Applied Mathematics from Cambridge University where he was a Research Fellow (Computer Modeling), and an MSc in Operations Research from the University of Austin, Texas. He is a regular writer and conference speaker, his papers have appeared in Quantitative Finance, Risk Magazine, Operations Research, IEEE Computer, amongst others, and presented at academic conferences and industry meetings including those organized by Bachelier Finance Society, WBS, Marcus Evans, Risk Magazine, and many more.
ROLAND STAMM is Head of Risk Methods and Valuation at HRE Group (formerly DEPFA Bank PLC), where he is responsible for (among other things) the development of new pricing models, model set up, validation and calibration, CVA adjustments, and market risk methodology. He was previously Head of Valuation at HRE Group, and has also held positions as Head of Market Risk Products, Head of IT Development, and Project Manager, all at DEPFA Bank. He holds a PhD in Mathematics (Algebraic Topology) from the Westfälische Wilhelms-Universität, Münster, Germany, where he was awarded a magna cum laude for his thesis "The K- and L- Theory of Certain Discrete Groups," and he received a master's degree in Mathematics from the Johannes-Gutenberg-Universität, Mainz.
Product Details :
- Series: Applied Quantitative Finance
- Hardcover: 256 pages
- Publisher: Palgrave Macmillan (September 4, 2012)
- Language: English
- ISBN-10: 1137268514
- ISBN-13: 978-1137268518
- Product Dimensions: 0.9 x 6 x 9.1 inches
More Details about Discounting, Libor, CVA and Funding: Interest Rate and Credit Pricing (Applied Quantitative Finance), 1st Edition
No comments:
Post a Comment