Interest Rate Derivatives

Thomas Poufinas ()
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Thomas Poufinas: Democritus University of Thrace

Chapter Chapter 5 in Fixed Income Investing, 2022, pp 265-347 from Springer

Abstract: Abstract Interest rate derivativesderivative(s)interest rate are financial products whose underlying asset/instrument/value is a fixed income securitysecurity(ies)fixed income or instrument that depends on interest rates either directly or indirectly. Accordingly, the payments they make depend on interest rates. As such, the focus is primarily in their valuation, as well as in their use. In this chapter we present some of the most well-known interest rate derivatives and the valuation methods most commonly used. These interest rates are repos, forward rate agreements, interest rate futures, interest rate swaps, interest rate options, embedded bond options, Mortgage Backed Securities, Collateralized Mortgage Obligations, Asset Backed Securities, swaptions and caps and floors. We study their characteristics; we price them and set the grounds for their use as tools for hedging interest rate risk, in particular by institutional investors, such as social security funds, pension schemes, insurers and bankers. After having read this chapter the reader is expected to have a very good understanding of how the interest rate derivatives operate.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-87922-8_5

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DOI: 10.1007/978-3-030-87922-8_5

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