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Topic Title: Book on Interest Rate Modelling by Leif Andersen and Vladimir Piterbarg
Created On Thu Sep 10, 09 09:53 AM

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piterbarg
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Posts: 285
Joined: Oct 2002

Thu Sep 10, 09 09:53 AM

Hello

Some of you will know that Leif Andersen and I have been working on a book on interest rate modelling (for the last 5 years, in fact). Well, the book is not quite ready -- but we are getting close, at about 1000 pages with 100 or so to go. So in preparation we have launched a website andersen-piterbarg-book.com where you can find more information (a table of contents, a sample chapter, etc) or register for future updates.

Vladimir

PS Thank you Paul for letting me post this

Posts: 137
Joined: Jul 2002

Thu Sep 10, 09 11:45 AM

I was sceptical until I saw the contents of this book given the vast literature in this area. The coverage is amazing and quite unique. I will be eagerly waiting for this book.

Will you be covering model risk and risk management of exotic IR products?

Good luck with this monumental work.

-------------------------
Nivas

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piterbarg
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Thu Sep 10, 09 12:42 PM

Thank you Nivas for kind words.

Part IV of the book is called Risk Management and is dedicated to issues around risk management of exotic IR products. The focus is very much on obtaining stable and robust risk sensitivities, but we do spend some time on general issues such as what is the risk management process, how the desk looks at it, practicalities, etc. We do not focus too much on model risk per se but throughout the book we discuss how to choose models appropriate for given products, how to calibrate them well, and how to assess the impact of such choices.

Posts: 137
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Thu Sep 10, 09 01:06 PM

Excellent.

I am interested in the model appropriateness, how relevant the model dynamics in pricing exotic instruments (forward dynamics) and risk measures. It looks like that you will be covering these as well. Also, any additional information about the real world challenges (like consideration by desk) will put things in perspective.

Well, I will be buying this book. One more question (which is quite obvious): When can we expect this book?

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Nivas

Edited: Thu Sep 10, 09 at 01:06 PM by rsneevas

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piterbarg
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Thu Sep 10, 09 03:24 PM

We expect to finish writing it before the year end. When it will actually be available will depend on how we decide to publish it. If we self-publish -- an option we are mulling over -- it should be quick, so I would expect it to hit the shelves, so to speak, before the end of 2009 or early 2010. If we go with a traditional publisher, that would take 6 to 12 months, I would guess.

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Cuchulainn
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Thu Sep 10, 09 03:37 PM

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Originally posted by: piterbarg
We expect to finish writing it before the year end. When it will actually be available will depend on how we decide to publish it. If we self-publish -- an option we are mulling over -- it should be quick, so I would expect it to hit the shelves, so to speak, before the end of 2009 or early 2010. If we go with a traditional publisher, that would take 6 to 12 months, I would guess.

Does end 2009 include copy editing, proof reading and camera-ready activities?

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http://www.datasimfinancial.com/coursesandevents.php

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piterbarg
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Thu Sep 10, 09 03:44 PM

that's the plan. most of it has been happening in parallel anyway. But, of course, as I am sure you know, these things seem to always take a lot longer than you expect :-)

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Cuchulainn
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Thu Sep 10, 09 03:51 PM

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Originally posted by: piterbarg
that's the plan. most of it has been happening in parallel anyway. But, of course, as I am sure you know, these things seem to always take a lot longer than you expect :-)

Indeed,

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jawabean
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Thu Sep 10, 09 07:42 PM

nice.

will there be downloadable sample codes?

any specific coverage of mortgage loans in FI section?

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piterbarg
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Fri Sep 11, 09 09:25 AM

no, there are no plans to have software code or cover mortgage markets

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Cuchulainn
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Fri Sep 11, 09 10:08 AM

Will the authors discuss 3 factor models (e.g. FX swaptions) using PDE/FDM with all whistles and bells, i.e. boundary conditions and truncation, extreme values of rho, correlation etc. It is at that stage becomes important because readers can test the algos. Plan B is to describe the algos in excrutiating detail so that you can program it yourself.

my 2 cents.

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http://www.datasimfinancial.com/coursesandevents.php

Edited: Fri Sep 11, 09 at 10:12 AM by Cuchulainn

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piterbarg
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Fri Sep 11, 09 10:32 AM

we ignore FX (focus on interest rate models) so no PRDs but we do go into an excruciating level of detail and all bells and whistles on the models we consider with an intention that people, having read the book, can write up production quality implementation. this is for both PDE and MC models (and "closed form" too, for single- and multi-rate vanilla derivatives)

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Cuchulainn
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Fri Sep 11, 09 10:35 AM

Sounds very good.

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http://www.datasimfinancial.com/coursesandevents.php

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jawabean
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Fri Sep 11, 09 02:57 PM

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Originally posted by: piterbarg
no, there are no plans to have software code

that's too bad. this would have been a great differentiator from other books on IR modeling.

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piterbarg
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Sat Sep 12, 09 01:12 PM

I don't think you learn by reading other people's code -- you learn by writing your own

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Cuchulainn
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Sat Sep 12, 09 07:17 PM

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Originally posted by: piterbarg
I don't think you learn by reading other people's code -- you learn by writing your own

Vladimir,
I think you do learn from reading code (and especially if it has been designed with some kind of UML blueprints), even if it has not been documented it may contain design nuggets that you can apply in new situations. I compare it to the building industry and architecture - you create CAD drawings which describe the product you have made or are about to make. BTW I learned C++ and design patterns - not from Gamma's GOF book (it had not been published, 1992) - but from having worked on a C++ risk system for equities. Unfortunately, documentation was Spartan ==> pattern mining.

The second issue - you learn by doing - is certainly true but this is not the main issue here, I think. I suspect Javabean (and possibly others) would like to run their models with their own parameters. Of course, you can write all the code yourself but 1) it takes longer, 2) you may not have the time or expertise to write it and 3) why write it if someone else has done it as part of the service. In particular, university students can benefit enormously from such a service.

In general, paper-based algorithms are the second-last step in the process before one maps them to code. Then we see how they really work and how robust they are. The algos are almost good enough, almost. but the proof is when the numbers come out. I have found that the code is a great judge of how good an algorithm really is. Algos nearly always work on paper, but in the end it is run in C++. We are not sure if the algo is correct until it has been tested on a computer.

I am sure your book will be very succcessful; seconding JB, providing source code (or even pseudo code like Clewlow and Strickland approach which is very good imo) would make it truly unique.

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http://www.datasimfinancial.com/coursesandevents.php

Edited: Sat Sep 12, 09 at 07:48 PM by Cuchulainn

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spursfan
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Sun Sep 13, 09 06:21 PM

Good try, Daniel - but if the book has code, they might be justified in adding a zero or two to the price

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Cuchulainn
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Sun Sep 13, 09 06:43 PM

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Originally posted by: spursfan
Good try, Daniel - but if the book has code, they might be justified in adding a zero or two to the price

I think this is what the market is looking for. Even '101' sanitized examples. But no code means that everyone will code the models from scratch. And new discussions on Wilmott. Given that all agree that quants spend [60,80]% of their time progamming/developing/coding it seemed to me a good idea to give them code to play with.

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http://www.datasimfinancial.com/coursesandevents.php

Edited: Sun Sep 13, 09 at 07:02 PM by Cuchulainn

Posts: 3006
Joined: Dec 2001

Mon Sep 14, 09 12:49 AM

writing good code would make their book more popular, no doubt. It would also delay the launch for about another 3 years...

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Quant Job Interview Questions and Answers now available on lulu.com and amazon.com

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jawabean
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Mon Sep 14, 09 02:04 AM

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Originally posted by: mj
writing good code would make their book more popular, no doubt. It would also delay the launch for about another 3 years...

dont they have their stuff implemented already?! dont they run some kind of code to test what they write about?

Cuchulainn explained it perfectly. if it's not the code, then it could be pseudo code. for instance, Knuth's books come with machine code, it cant be run anywhere(*), but it's so useful.

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