Preface to the First Edition (published 2004)

The Dynamics of the Yield Curve

In chapter 2 of the companion volume to this book in the boxed-set library, Corporate Bonds and Structured Financial Products, we introduced the concept of the yield curve, and reviewed some preliminary issues concerning both the shape of the curve and to what extent the curve could be used to infer the shape and level of the yield curve in the future. We do not know what interest rates will be in the future, but given a set of zero-coupon (spot) rates today we can estimate the future level of forward rates using a yield curve model. In many cases however we do not have a zero-coupon curve to begin with, so it then becomes necessary to derive the spot yield curve ...

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