# Fixed-income pricing

*Qiang Dai* and
*Kenneth J. Singleton*

Chapter 20 in *Handbook of the Economics of Finance*, 2003, vol. 1, Part 2, pp 1207-1246 from Elsevier

**Abstract:**
This chapter surveys the literature on fixed-income pricing models, including dynamic term-structure models, and interest-rate sensitive, derivative pricing models. Our overview of conceptual approaches highlights the tradeoffs that have emerged between the complexity of the probability model for the "risk factors[equal, rising dots], data availability, the pricing objective, and the tractability of the resulting pricing model. Initially, we examine term-structure models that price both bonds (default-free and defaultable) and fixed-income derivatives with payoffs in terms of prices or yields on these bonds. These include affine, quadratic-Gaussian, and various stochastic volatility models of the term structure. Then we turn to models designed to price fixed-income derivatives, taking the current yield curve as an input into the pricing framework. These include models based on forward rates and the LIBOR and Swaption Market models.

**JEL-codes:** G12 (search for similar items in EconPapers)

**Date:** 2003

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**Persistent link:** http://EconPapers.repec.org/RePEc:eee:finchp:2-20

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