Chapter

Fixed Income Securities

Claus Munk

in Fixed Income Modelling

Published in print June 2011 | ISBN: 9780199575084
Published online September 2011 | e-ISBN: 9780191728648 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199575084.003.0006
Fixed Income Securities

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Modern financial markets offer a large variety of different fixed income securities and the markets for such securities are of an enormous size. This chapter describes and discusses the main fixed income securities — forwards, futures, options, swaps, and swaptions — more formally. It explores what can be concluded about the prices of the securities without specifying any concrete model of the term ‘structure of interest rates’, but only imposing the well-accepted no-arbitrage pricing paradigm. Links between the prices of different securities are derived, including the put-call parity for European options on bonds, a link between the prices of caps and floors and the prices of portfolios on certain European options on zero-coupon bonds, and a relation between the prices of European swaptions and the prices of certain European options on coupon bonds.

Keywords: arbitrage; forwards; futures; Eurodollar futures; options; caps; floors; swaps; swaptions

Chapter.  18260 words. 

Subjects: Financial Markets

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