Interest Rates and Coupon Bonds in Quantum Finance

Provides physicists and mathematicians researching in finance, and professionals working in the finance industry, with a new perspective on finance.

Belal E. Baaquie (Author)

9780521889285, Cambridge University Press

Hardback, published 17 September 2009

508 pages, 25 b/w illus.
25.3 x 17.7 x 2.5 cm, 1.14 kg

The economic crisis of 2008 has shown that the capital markets need new theoretical and mathematical concepts to describe and price financial instruments. Focusing on interest rates and coupon bonds, this book does not employ stochastic calculus – the bedrock of the present day mathematical finance – for any of the derivations. Instead, it analyzes interest rates and coupon bonds using quantum finance. The Heath-Jarrow-Morton and the Libor Market Model are generalized by realizing the forward and Libor interest rates as an imperfectly correlated quantum field. Theoretical models have been calibrated and tested using bond and interest rates market data. Building on the principles formulated in the author's previous book (Quantum Finance, Cambridge University Press, 2004) this ground-breaking book brings together a diverse collection of theoretical and mathematical interest rate models. It will interest physicists and mathematicians researching in finance, and professionals working in the finance industry.

1. Synopsis
2. Interest rates and coupon bonds
3. Options and option theory
4. Interest rate and coupon bond options
5. Quantum field theory of bond forward interest rates
6. Libor Market Model of interest rates
7. Empirical analysis of forward interest rates
8. Libor Market Model of interest rate options
9. Numeraires for bond forward interest rates
10. Empirical analysis of interest rate caps
11. Coupon bond European and Asian options
12. Empirical analysis of interest rate swaptions
13. Correlation of coupon bond options
14. Hedging interest rate options
15. Interest rate Hamiltonian and option theory
16. American options for coupon bonds and interest rates
17. Hamiltonian derivation of coupon bond options
Appendixes
Glossaries
List of symbols
Reference
Index.

Subject Areas: Physics [PH], Economic forecasting [KCJ], Economics, finance, business & management [K]