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Fixed-income pricing

In: Handbook of the Economics of Finance

Listed author(s):
  • Dai, Qiang
  • Singleton, Kenneth J.

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, December.
  • 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
    Contact details of provider: Web page: http://www.elsevier.com/wps/find/bookseriesdescription.cws_home/BS_HE/description

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