05-Interest(f).pptVIP

Primbs, MSE 345 * Applications of the Return Form of Arbitrage Pricing:Interest Rate Derivatives Primbs, MSE 345 * Interest Rate Derivatives Single Factor Short Rate Models Multi Factor Models Heath-Jarrow-Morton Basics Defaultable Bonds Primbs, MSE 345 * Basic Quantities: The short rate: r(t) applies to an infinitesimal time period dt. Instantaneous forward rates: f(t,s) the time t forward interest rate between times s and s+ds. Zero coupon bonds: B(t;T) is the price at time t with maturity at time T (and payoff of $1). The term structure of in