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Fixed-income pricing

In: Handbook of the Economics of Finance

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Author Info
Dai, Qiang
Singleton, Kenneth J.
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.) Handbook of the Economics of Finance, , chapter 20, pages 1207-1246, 2003.

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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This chapter was published in the following book, which is listed on IDEAS:
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. [Downloadable!] (restricted)
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G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

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