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There is a lot of different kind of IR models. You can modelize short rates, forward rates or more complex rates like Swap rates. Once you chose a rate and a model that fit your needs (some are easier to use for a given application or asset class, some models are incompatible with some hypothesis or other models). The model will usually take the form of a ...


2

In Andersen & Piterbarg's book, LGM is referred to as "The Hagan and Woodward Parameterization" and treated separately in 11.3.2.6. The fact that this practice-oriented book devotes a couple of pages would imply LGM is of practical use in the real market. I know two large software providers adopt LGM.


2

I haven't read Yue-Kuen Kwok's book, so it's hard for me to comment on it. Based on my personal experience, I'd recommend the following literature, depending on what you're trying to accomplish: If you're on the quant-path, I think a lot of practitioners would recommend Interest Rate Models – Theory and Prctice (Damiano Brigo & Fabio Mercurio): This ...


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For forward libor models, one can hedge interest rate options by using bonds. (Note that forward libor is a tradeable security under the forward measure). See http://www.columbia.edu/~mh2078/market_models.pdf For affine yield models (like Vasicek or CIR models) the inverse problem is the most useful. Given an interest rate process, I can compute a ...



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