Interest Rate Instruments: Valuation with the BSM ModelÉvaluation BSM (modèle), Hybrids Hybrids, and Structured Produits structurés Products Structured products

Patrice Poncet () and Roland Portait
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Patrice Poncet: ESSEC Business School
Roland Portait: ESSEC Business School

Chapter 16 in Capital Market Finance, 2022, pp 667-717 from Springer

Abstract: Abstract This chapter presents more complex products than floating rate instruments and vanilla interest rate swaps. Valuation of the products with optional provisions uses the Black–Scholes–Merton (BSM) model adapted to the context of stochastic interest rates. Section 16.1 presents the principles of option valuation adapted to this context (using the forward-neutral expectation of the payoff) and several versions of the generalized BSM model. Section 16.2 is devoted to swaps and swaptions. Section 16.3 presents caps and floors and Sect. 16.4 combinations, hybrid and structured products, and the financial engineering needed to study these instruments. Section 16.5 is devoted to hybrid products embedding options or optional clauses, such as convertible bonds.

Date: 2022
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DOI: 10.1007/978-3-030-84600-8_16

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