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Fixed-income pricing

In: Handbook of the Economics of Finance

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  • Dai, Qiang
  • Singleton, Kenneth J.
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    Abstract

    This chapter surveys the literature on fixed-income pricing models, including dynamic term-structure models, and interest-rate sensitive, derivative pricing models. Our overview of conceptual approaches highlights the tradeoffs that have emerged between the complexity of the probability model for the "risk factors[equal, rising dots], data availability, the pricing objective, and the tractability of the resulting pricing model. Initially, we examine term-structure models that price both bonds (default-free and defaultable) and fixed-income derivatives with payoffs in terms of prices or yields on these bonds. These include affine, quadratic-Gaussian, and various stochastic volatility models of the term structure. Then we turn to models designed to price fixed-income derivatives, taking the current yield curve as an input into the pricing framework. These include models based on forward rates and the LIBOR and Swaption Market models.

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    This chapter was published in:

  • G.M. Constantinides & M. Harris & R. M. Stulz (ed.), 2003. "Handbook of the Economics of Finance," Handbook of the Economics of Finance, Elsevier, edition 1, volume 1, number 2, March.
    This item is provided by Elsevier in its series Handbook of the Economics of Finance with number 2-20.

    Handle: RePEc:eee:finchp:2-20

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    Cited by:
    1. Gourieroux, Christian & Sufana, Razvan, 2011. "Discrete time Wishart term structure models," Journal of Economic Dynamics and Control, Elsevier, vol. 35(6), pages 815-824, June.

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