Preface ix
Contributing Authors xii
SECTION ONE
Interest Rate and Term Structure Modeling 1
CHAPTER 1
Interest Rate Models 3
Oren Cheyette
CHAPTER 2
The Four Faces of an Interest Rate Model 27
Peter Fitton and James F. McNatt
CHAPTER 3
A Review of No Arbitrage Interest Rate Models 39
Gerald W. Buetow, Frank J. Fabozzi, and James Sochacki
CHAPTER 4
An Introductory Guide to Analyzing and Interpreting the Yield Curve 73
Moorad Choudhry
CHAPTER 5
Term Structure Modeling 93
David Audley, Richard Chin, and Shrikant Ramamurthy
CHAPTER 6
A Practical Guide to Swap Curve Construction 137
Uri Ron
CHAPTER 7
Fitting the Term Structure of Interest Rates Using the
Cubic Spline Methodology 157
Rod Pienaar and Moorad Choudhry
CHAPTER 8
Measuring and Forecasting Yield Volatility 187
Frank J. Fabozzi and Wai Lee
SECTION TWO
Modeling Factor Risk 213
CHAPTER 9
Term Structure Factor Models 215
Robert C. Kuberek
CHAPTER 10
Multi-Factor Risk Models and Their Applications 241
Lev Dynkin and Jay Hyman
CHAPTER 11
Measuring Plausibility of Hypothetical Interest Rate Shocks 295
Bennett W. Golub and Leo M. Tilman
SECTION THREE
Valuation Models 313
CHAPTER 12
Understanding the Building Blocks for OAS Models 315
Philip O. Obazee
CHAPTER 13
Yield Curves and Valuation Lattices: A Primer 345
Frank J. Fabozzi, Andrew Kalotay, and Michael Dorigan
CHAPTER 14
Using the Lattice Model to Value Bonds with Embedded Options,
Floaters, Options, and Caps/Floors 357
Frank J. Fabozzi, Andrew Kalotay, and Michael Dorigan
CHAPTER 15
Using the Lattice Model to Value Forward Start Swaps and Swaptions 379
Gerald W. Buetow, Jr. and Frank J. Fabozzi
CHAPTER 16
Valuing Path-Dependent Securities 421
C. Douglas Howard
CHAPTER 17
Monte Carlo Simulation/OAS Approach to Valuing
Residential Real Estate-Backed Securities 443
Frank J. Fabozzi, Scott F. Richard,and David S. Horowitz
CHAPTER 18
Mortgage Pricing on Low-Dimensional Grids 469
Alexander Levin
CHAPTER 19
The Effect of Mean Reversion on the Valuation of Embedded Options
and OAS 489
David Audley and Richard Chin
INDEX 499