Interest Rates and Related Contracts
By a fixed-income market we mean that sector of the global financial market on which various interest rate-sensitive instruments, such as bonds, swaps, swaptions, caps, etc. are traded. In real-world practice, several fixed-income markets operate; as a result, many concepts of interest rates have been developed. There is no doubt that management of interest rate risk, by which we mean the control of changes in value of a stream of future cash flows resulting from changes in interest rates, or more specifically the pricing and hedging of interest rate products, is an important and complex issue. It creates a demand for mathematical models capable of covering all sorts of interest rate risks.
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