Pricing Options on Interest Rate Instruments
Throughout the world, interest rates serve as instruments of control. When inflation rises to an undesirable or politically unacceptable level, the appropriate authorities raise interest rates to curb expenditure. In times when economic activity and corporate and consumer confidence is less buoyant, the policy is to lower rates. Interest rate derivatives were among the first contracts to be offered on derivative exchanges and have their origins in the period following the breakdown of the Bretton Woods Agreement. In today's sometimes ...
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