Interest-Rate Products

Abstract

In Chap. 4 and 5 we described a generic valuation framework which takes into account the possibility of transactions having early exercise features. In the notation that we introduced there, we represent by T={τ ₁,τ ₂,…,τ _n }∪{∞} the set of times at which the holder of the option may opt to replace the no-exercise portfolio P with time-t value $V_{t}^{P}$ , with a different portfolio Q with time-t value $V_{t}^{Q}$ ({∞}=T ^∞ indicates no-exercise). The goal of this and of the next chapters is to compute counterparty credit exposure for different types of transactions.