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Advanced Quantitative Finance with C++ by Alonso Peña Ph.D

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Interest rates

In the interest rate asset class, the underlying is an interest rate. Interest rates are quite complex. We can see this if we consider the question "what is the interest rate today?" The answer is certainly not simply "5 percent pa" because we also need to specify the maturity of the rates (T) we want to know. So interest has one more dimension than objects like equities or forex. While the currently observed equity value is a scalar quantity, that is, a single number, the current interest rate curve is a vector.

For example, let's consider the spot EURIBOR interest rates observed on May 13, 2013 for the maturities of 1 month, 3 months, 6 months, and 12 months (as published by http://www.euribor-ebf.eu/). We denote these spot rates ...

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