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PDE Valuation of Interest Rate Derivatives - From Theory to Implementation220 Pages, PaperbackAuthor: Peter Kohl-LandgrafISBN 978-3-8334-9537-3Publisher: BoD GmbH, GermanyAmazon-LinkContentsThe Libor Market Model and its several extensions can be seen as state of the art in interest rate modeling. However, due to the ever increasing complexity of interest rate products, the high dimensionality of this approach starts to reach its limits from the computational side.This book is mainly concerned with a class of Markovian Yield Curve Models (especially the so-called Cheyette Model) which try to overcome that disadvantage as they enable a low-dimensional deterministic and fast PDE valuation.The objective of this book is thereby threefold:(i) To illuminate in a compact way the connection between stochastic processes and partial differential equations as well as review the key features of arbitrage-free pricing.(ii) To embed the here analyzed Markovian model class into the entire framework of interest rate models.(iii) To present and implement robust numerical schemes (especially for higher dimensions), which enable an efficient computational treatment of risk-neutral product valuation by using PDE methods.

If you live outside Germany, Austria or Switzerland, you cannot order it via BOD it seems, and in that case try www.amazon.deThis is probably the first detailed treatment of Cheyette with all details included.

I checked Worldcat and it did not list any libraries in the U.S. that have it. Was it actually published in Sept. 07 as the Web site said or have they not updated the publication date ?

Hi,the book has been published in September 2007 and is available on all german bookstores or on the publisher's website: BoDMeanwhile here is an excerpt from the:Table Of Contents1. Foundations Stochastic Processes SDE’s and Probability Distributions Changing Probability Measures: Girsanov’s Theorem Connection to PDEs: The Feynman-Kac Theorem Applications in Finance 2. Fixed Income Markets The Yield Curve Interest Rate Securities Interest Rate Derivatives General Modeling Approach3. Models of the Yield Curve A Summary of Short Rate Models The Heath-Jarrow-Morton Framework The Libor Market Model - Direct Derviation from HJM4. Markovian Representations of the Yield Curve Separable Volatility: The Cheyette Model The Analytical Bond Price The Valuation PDE The Case of Constant Parameters - Connections to Hull-White Multi-Factor Volatility 5. Numerical Solution Discretization of Differential Opterators Finite Difference Schemes in Multiple Spatial Dimensions Consistency, Stability and Convergence Alternating Direction Implicit Schemes (ADI) Treatment of Boundary Conditions (v.Neumann, Dirichlet, Generic..) 6. Practical Considerations Early Exercise Products and Optimal Control Problems Local and Stochastic Volatility Specifications (CEV, Displaced Diffusion) True Stochastic Volatility Calibration to Market Data 7. Design Issues and C++ Implementation Components of the Finite Difference Scheme The Valuation Model PDE Product Valuation Routines ( e.g. Bermudan Swaption )

QuoteOriginally posted by: jfuquaI checked Worldcat and it did not list any libraries in the U.S. that have it. Was it actually published in Sept. 07 as the Web site said or have they not updated the publication date ?The only place (outside bespoke) is!here

QuoteThis is probably the first detailed treatment of Cheyette with all details included.don't be ridiculous... this is simply a paperback print of a student's german diploma thesis.don't be fooled, just because something is published, doesn't mean that it is worth reading.

QuoteQuoteThis is probably the first detailed treatment of Cheyette with all details included.don't be ridiculous... this is simply a paperback print of a student's german diploma thesis.don't be fooled, just because something is published, doesn't mean that it is worth reading.Let me tell you why I think this...There have been many threads and questions on this model (do a Google) and I can tell for a fact that there were a number of problems to resolved, for example the original ADI scheme that needed to be adapted. For the record, I have seen this work long before the book came out. He addressed some open problems that were not resolved till that time.The author discusses the problem from A-Z, including IR models, PDE and numerical solutions right up to UML and C++. So fair play Mr. Landgraf for this initiative. So, where this model is published (I am willing to bet you won't), and we are back at my original claim. Have a look at this thread that proves the dearth of feedback on the modelCheyette

no one is questioning the importance of the model, that is beyond doubt. a lot has been published about the model too, incidentally. all that doesn't change the fact that this he is a student who is selling his maters degree work. I am not saying you shouldn't read it, I am just dubious as to the depth of its content. even if the student is a genius, which he may well be, given that he is the university of bayreuth , the piece is at most academic in style. that is a big serious fat issue, because the last thing we need is yet another book on interest rates written by an academic.

Ok, but many practitioners have been asking how to model Cheyette and this the only answer that can be found. The original ADI article is no longer googable! edit: a general pattern when solving PDE here is to use some FD scheme (e.g. ADI, CN) and the treatment of the boundary conditions is relegated to the sidelines. That's when the questions start ...

A couple of references might be of interest to some people.Racicot François-Éric, Raymond Théoret ‘Les Modèles HJM et LMM Revisités et Leurs Versions Étendues’ 2006 <sausage monte carlo, TARN, stochastic volatility Cheyette> Andreasen Jesper 'Back to the Future' <stochastic volatility multi-factor yield curve models, quick calibration/efficient Monte Carlo simulation, Piterbarg says superseded 'Turbo Charge...Cheyette> RISK 9/05Cheyette Oren 'Interest Rate Models' in Advances in Fixed Income Valuation, Modeling and Risk' ed F. Fabozzi 97 paper can actually be downloaded from http://media.wiley.com/product_data/exc ... 220949.pdf Cheyette Oren 'The New Cosmos--U.S. Valuation Algorithms' BARRA <CIR, mean reverting gaussian>Cheyette Oren 'Markov Representation of the Heath-Jarrow-Morton Model' wp BARRA 8/96 http://papers.ssrn.com/sol3/papers.cfm? ... id=6073You might see what papers that have been released that you can find by Piterbarg or Andreasen on the model.

Hi,let me say a few words concerning that discussion.QuoteOriginally posted by: unkpath... all that doesn't change the fact that this he is a student who is selling his maters degree workQuoteOriginally posted by: unkpath... the piece is at most academic in style. Yes, the book is based on my diploma thesis ...Still the topic has been motivated from practical needs as it was actually a project between my university and the risk controlling dep. of a german bank.My aim was to bring the insights ( of practical & "academical" nature !!) which i had while working with that model to a broader audience.Many details concerning model setup and numerics cannot be found in a book or in the papers concerning the model.Many of those papers listed above i worked with as well and serve as references in the book, so I claim to be up to date with the literatureBeyond I included many ideas concerning the (C++) implementation of the PDE Solver and Model to price exotic product types. So if you want to understand and implement the model and the demanding numerics behind, than the text provides you with the missing details.Quote.. student who is selling his maters degree workFYI: The price of the book is marginal above its manufacturing costs - i would say that this is fair.Regards,Peter

one should agree indeed that the price is fair if the text delivers quality information on the topic. We are far from the € 50+ price range of Wiley and co.Jesper himself said it took him a few years to have the Cheyette model work properlyhttp://www.math.ku.dk/~rolf/nordea_road_show_talk.pdf (p16)

QuoteMany details concerning model setup and numerics cannot be found in a book or in the papers concerning the model.Many of those papers listed above i worked with as well and serve as references in the book, so I claim to be up to date with the literatureBeyond I included many ideas concerning the (C++) implementation of the PDE Solver and Model to price exotic product types. So if you want to understand and implement the model and the demanding numerics behind, than the text provides you with the missing details.This is specifically what I was referring to - the detailed numerics - which no one I know has done as far as I have seen. Mostly people say use convexity boundary conditions but it not always the correct solution.My only (trivial) remark is that it would have been nice to try IMEX and splitting methods just to compare accuracy, ease of development compared to ADI. The PDE is effecively a 1-factor BS with a hyperbolic convection term (for this you could use explicit term). The author employs C++ - the de facto standard for these computationally intensive problems -

QuoteJesper himself said it took him a few years to have the Cheyette model work properlyhttp://www.math.ku.dk/~rolf/nordea_road_show_talk.pdf (p16)Is there a final version of the paper in circulation?

No that I know unfortunately