Interest Rate Modelling in the Multi-Curve Framework

A new standard in interest rate modelling, called the multi-curve framework, emerged after the financial crisis. The framework covers two important market features: the collateralisation of derivative trades and the spread between different rate benchmarks. This book starts from the collateral mechanisms and builds the full framework from the foundations through all the technical and financial details. It kicks off with the collateral discounting in all its variants: domestic cash, foreign cash, or other assets and then introduces the different benchmarks and their associated spreads. Following the discontinuation of certain benchmarks, part of the book is dedicated to the transition and the emergence of the overnight benchmark dominance in certain currencies. Based on the theoretical framework of the first chapters, the important curve calibration mechanism is analysed in detail. Many instruments are investigated with all their practical peculiarities. Most of the book is dedicated to the understanding of the static interest rate curves. The book's last part deals with the building blocks of any dynamic model explaining their future behaviour and apply some of those models to the most liquid instruments. Based on more than 25 years of experience as a trader and quantitative analyst in the related markets, the author includes many details on implementation in libraries and using the framework in risk management, which will be of interest to traders, risk managers, quantitative analysts, and actuaries alongside professors, researchers, and students of banking, insurance, risk management, and quantitative finance.

Discusses the collateralisation of derivative trades and the spread between different rate benchmarks Written by one of the founding fathers of this framework with more than 25 years of experience Provides both theoretical foundations and practical details on implementation in financial markets

Autorentext

Marc Henrard is a Managing Partner at muRisQ Advisory. Over the last 25 years, Marc has worked in various areas of quantitative finance including risk management, trading, software development, and quantitative research. He was formerly Head of Quantitative Research at OpenGamma, Head of Interest Rate Modeling for Dexia Group, Head of Quantitative Research and Deputy Head of Interest Rate Trading at the Bank for International Settlements (BIS) and Deputy Head of Treasury Risk also at BIS. Previously, he held several academic positions in Belgium, Italy, and the UK. Marc's research focuses on interest rate modelling, risk management, and margin models. He is an expert in the multi-curve framework, the impact of collateral, benchmark transition, in depth analysis of liquid derivatives, and market infrastructure (initial margin, quantitative impacts of regulation). Marc holds a PhD in Mathematics from the University of Louvain, Belgium.

Klappentext

Marc Henrard has written a much needed second edition of his successful and popular multi-curve book. After a number of events, including the so-called LIBOR end hit the markets and new types of contracts with new types of rates have appeared, together with some instances of survival of the old rates, a book like this has been much needed for the quant community and beyond.

Damiano Brigo , Chair of Mathematical Finance and Stochastic Analysis, Imperial College London

A decade ago, this book did not just introduce the essential multi-curve framework, it also laid its foundations with rigorous clarity, recognizing the pitfalls of simply adapting old 'one-curve' approaches. Now, in its vital second edition, the author delivers an even more indispensable resource, profoundly addressing the market shifts that have redefined interest rate modeling. This edition is a direct response to critical changes like BCBS-IOSCO margin requirements and, most importantly, the end of LIBOR and the benchmark transition.

Andrea Pallavicini , Head of Equity, FX and Commodity Models, Intesa Sanpaolo

This is the book I would have loved to write, but now that I have it in front of me, I realize I would not have matched Marc Henrard's excellence. All the essential aspects needed to understand modern interest rate modeling theory, as well as to apply it in everyday financial practice, are clearly explained with a rigorous yet practical approach. Definitely, it is one of the books that every practitioner of quantitative finance should read and keep at hand.

Marco Bianchetti , Head of Market and Counterparty Risk IMA Methodologies, Market and Financial Risk Management, Intesa Sanpaolo; Milan Adjunct Professor of Advanced Interest Rate Models and Markets, University of Bologna

Marc Henrard is a Managing Partner at muRisQ Advisory. Over the last 25 years, Marc has worked in various areas of quantitative finance including risk management, trading, software development, and quantitative research. He was formerly Head of Quantitative Research at OpenGamma, Head of Interest Rate Modeling for Dexia Group, Head of Quantitative Research and Deputy Head of Interest Rate Trading at the Bank for International Settlements (BIS) and Deputy Head of Treasury Risk also at BIS. Previously, he held several academic positions in Belgium, Italy, and the UK. Marc's research focuses on interest rate modelling, risk management, and margin models. He is an expert in the multi-curve framework, the impact of collateral, benchmark transition, in depth analysis of liquid derivatives, and market infrastructure (initial margin, quantitative impacts of regulation). Marc holds a PhD in Mathematics from the University of Louvain, Belgium.

Inhalt

Chapter 1. Introduction.- Chapter 2. Collateral Framework.- Chapter 3. Benchmarks and the Multi-curve Framework Foundations.- Chapter 4. Curve calibration and Interpolation.- Chapter 5. Curve modelling.- Chapter 6. Transition.- Chapter 7. More instruments.- Chapter 8. Risk management.