Advanced Fixed Income Securities
The key to pricing or valuing any instrument is to estimate the cash flows of the instrument and discount each cash flow using an appropriate rate of interest. Cash flow is simply the cash that is expected to be received each period from an investment. For a bond this includes coupon and principal payments; for an interest rate swap this would include fixed or floating rate coupon payments, and so on. In order to price an instrument is it important to project the amount and timing of cash flows.
KeywordsCash Flow Term Structure Forward Rate Spot Rate Zero Curve
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