O'Reilly logo

Principles of Financial Engineering, 2nd Edition by Salih N. Neftci

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

CHAPTER 13

Fixed-Income Engineering

1. Introduction

This chapter extends the discussion of swap type instruments and outlines a simple framework for fixed-income security pricing. Term structure modeling is treated within this framework. The chapter also introduces the recent models that are becoming a benchmark in this sector.

Until recently, short-rate modeling was the most common approach in pricing and risk-managing fixed-income securities. The publication in 1992 of the Heath-Jarrow-Merton (HJM) approach enabled arbitrage-free modeling of multifactor-driven term structure models, but markets continued to use short-rate modeling. Today the situation is changing. The Forward Libor or Brace-Gatarek-Musiela (BGM) model is becoming the market ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required