Preface

Motivation. The traditional textbooks on interest rate modeling are no longer adequate in a modern context as overviews of the techniques needed for the valuation of interest rate derivatives. In the years following the crisis, the problem of developing new models for interest rate derivatives has attracted significant attention, both from researchers working in financial institutions, as well as researchers working in academia. Various models are continually being proposed. The aim of this book is therefore two-fold. On the one hand, it aims at providing an overview of the state-of-the art techniques in modern interest rate modeling and, on the other hand, it attempts to clarify the link between these models and the classical literature. From the practical point of view, the importance of up-to-date interest rate models can be best illustrated when viewing the fixed-income market as a part of the global derivatives market. According to the yearly statistics provided by the Bank for International Settlements, the notional amounts outstanding each year for over-the-counter (OTC) interest rate derivatives sum up to 80 % of the total trade volume in OTC derivatives ($505 trillion out of the total volume of $630 trillion corresponded to interest rate derivatives in 2014).