Modelling Fixed Income Securities and Interest Rate Options
This text is designed for courses on fixed income securities at the MBA level and graduate level courses in finance. The goal of the text is to provide comprehensive coverage of fixed income instruments and models. A risk management perspective of option theory is presented throughout. The text adopts a non-institutional, binomial approach to fixed income securities based on option pricing technologies, providing cutting-edge theory and technique. While the book is based on the Heath-Jarrow-Morton (HJM) model of interest rate options, discussions also compare and contrast other related models such as the Hall-White model. In addition, traditional techniques of duration and convexity are discussed as these relate to the HJM model. Statistics and algebra are prerequisites.
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American call option American options analysis arbitrage opportunities arbitrage-free price bond price curve bond's calculations cash flows Chapter complete with respect compute construction coupon bond coupon payment defined delta denoted discrete-time dollar European call option example exercise expiration date Financial floating-rate loan floorlet forward contract forward price forward rate curve forward rate process four-period zero-coupon bond futures contract futures price given in Fig implies index-amortizing swap interest rate cap interest rate options Jarrow maturity bond maturity date maturity zero-coupon bond money market account node one-factor economy opportunities with respect paying floating pricing and hedging principal pseudo probabilities range note risk-neutral valuation procedure screen SECTION self-financing trading strategies sigma simple contingent claim simple interest rate spot rate process stochastic process structure of interest swaptions synthetic T-maturity term structure three-period zero-coupon bond trading strategy set Treasury securities Trees software two-period vector volatility functions x(ti yield zero-coupon bond price