"The economic crisis of 2008 has shown that the capital markets need new theoretical and mathematical concepts to describe and price financial instruments. Focusing almost exclusively on interest rates and coupon bonds, this book does not employ stochastic calculus - the bedrock of the present...

We follow Mercurio's extension of the LIBOR market model with stochastic Basis spreads and model the joint evolution of forward rates belonging to the discount curve and corresponding spreads with FRA rates. We consider Heston stochastic-volatility dynamics and show how to calculate the swaption...