Cash Flow Engineering, Interest Rate Forwards and Futures
In this chapter, we present the first detailed application of financial engineering tools in the form of simple interest rate derivatives and develop our first contractual equation. First, we introduce the yield curve and its construction as well as market conventions for yield quotations. Then we discuss LIBOR, other benchmark interest rates and the TED spread. We developed our first contractual equation. This equation is manipulated to obtain synthetic loans, synthetic deposits, and synthetic spot transactions. We describe the replication of forward loans using bond and money market instruments, respectively. We build on this discussion to introduce forward on interest rates ...
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