Interest Rates and Interest Rate Derivatives

2010 ◽  
pp. 173-212
Author(s):  
Jürgen Franke ◽  
Wolfgang Karl Härdle ◽  
Christian Matthias Hafner
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Interest Rate Derivatives

Derivatives Markets

2019 ◽  
pp. 151-166
Author(s):  
Halil Kiymaz ◽  
Koray D. Simsek
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Credit Derivatives ◽  
Forward Rate ◽  
Fixed Income ◽  
Over The Counter ◽  
Interest Rate Options ◽  
Interest Rate Derivatives ◽  
Fixed Income Derivatives ◽  
Derivatives Markets

Interest rate derivatives markets have enjoyed substantial growth since the late 1990s. This chapter discusses the development of these markets since 2000 and introduces the most popular interest rate derivative instruments. Although forward rate agreements and interest rate swaps are important examples of over-the-counter (OTC) products, futures on interest rates and bonds are innovations of organized exchanges. Both OTC interest rate options and exchange-traded options on interest rate futures are discussed to illustrate an overlapping area of both types of derivatives markets. Participants in debt markets are also exposed to both interest rate and credit risk. To mitigate the latter risk, the OTC fixed income derivatives markets provide credit default swaps (CDSs). As credit derivatives are also a subset of fixed income derivatives, CDSs are discussed further.

Derivatives Pricing in the Positive Interest Rates

2004 ◽  
Vol 12 (2) ◽  
pp. 157-179
Author(s):  
Joon Hee Rhee
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Analytic Solutions ◽  
Infinitely Divisible ◽  
Pricing Kernel ◽  
Derivatives Pricing ◽  
Interest Rate Derivatives ◽  
Practical Applications ◽  
Kernel Approach

This paper examines the pricing of interest rates derivatives such as caps and swaptions in the pricing kernel framework. The underlying state variable is extended to the general infinitely divisible Levy process. For computational purposes, a simple pricing kernel as in Flesaker and Hughston (1996) and Jin and Glasserman (2001) is used. The main contribution or purpose of this paper is to find several proper positive martingales, which is key role of practical applications of the pricing kernel approach with interest rates guarantee to be positive. Particularly, this paper first finds and applies a quite general type of a positive martingale process to pricing interest rate derivatives such as swaptions and range notes in the incomplete market setting. Such interest rate derivatives are hard to find analytic solutions. Consequently, this paper shows that such a choice of the positive martingale in the kernel framework is a promising approach to price interest rate derivatives

Interest Rates and Interest Rate Derivatives

2019 ◽  
pp. 159-195
Author(s):  
Jürgen Franke ◽  
Wolfgang Karl Härdle ◽  
Christian Matthias Hafner
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Interest Rate Derivatives

Libor Market Models

2019 ◽  
pp. 305-316
Author(s):  
Tomas Björk
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Market Models ◽  
Interest Rate Derivatives

This chapter presents the LIBOR market models. These models, which produce lognormal interest rates, are widely used in the industry, can be calibrated to the market cap curve and used to price and hedge exotic interest rate derivatives. They involve a highly nontrivial use of the change of numeraire technique discussed in Chapter 15.

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