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J Econ (2012) 107:195197
DOI 10.1007/s00712-012-0290-8
BOOK REVIEW
Published online: 26 May 2012 Springer-Verlag 2012
The book Fixed Income Modelling provides a unied presentation of dynamic term structure models and their application to the pricing and risk management of xed income securities. I enjoyed reading the book. Claus Munk manages to present many demanding topics in a very clear and understandable way. He gives both, a formal mathematical modelling as well as economic understanding. The book is well suited as a textbook on xed income for advanced nance students. I also recommend reading to researchers and nance professionals.
The book is structured into 16 chapters. Chapter 1 starts with the question: what is xed income analysis? It also gives the basic bond market terminology, contains an overview of the bond and money markets and provides a brief introduction to xed income derivatives. Chapter 2 discusses methods to extract or estimate a zero coupon yield from bond prices (bootstrapping, cubic splines and the Nelson-Siegel parametrization). Chapter 3 is an introduction to stochastic processes and stochastic calculus. In spite of the mathematically demanding content, the chapter is indeed accessible and a pleasure to read. A review of general asset pricing theory is given in Chap. 4. In a very condensed version, Claus Munk manages, in a continuous-time framework, to derive the central results of modern asset pricing theory in an arbitrage-free market. The reader gets familiar with state-price deators, risk-neutral probability measures, market prices of risk, the relation to individuals marginal rates of substitution, and the equivalent representations of arbitrage-free pricing mechanisms. I particularly like Chap. 5 The Economics of the Term Structure of Interest Rates. It reminds the reader to reconsider the foundations of term structure models, i.e. besides their possibilities to be calibrated to market data. Claus Munk derives the links between equilibrium interest rates and aggregate consumption as well as between equilibrium interest rates
A. Mahayni (B)
Universitt Duisburg-Essen, Essen, Germany e-mail: [email protected]
Munk, C.: Fixed income modelling
XVI, 512pp. Oxford University Press, Oxford, 2011. Hardcover,...