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Interest Rates Models Zero-coupon bonds
 

Summary: Interest Rates Models
1
Zero-coupon bonds
Definition
A zero-coupon bond with maturity T or T-bond is a contract which
guarantees the holder to receive the amount 1 at time T. For this
agreement if it is made at time t the holder has to pay the price P(t, T).
2
Spot-, Forward- and Short Rate
Definition
(a) The spot rate Y (S, T) for the period [S, T] is defined by
Y (S, T) := -
log P(S, T)
T - S
.
(b) The forward rate F(t, T) with maturity T, contracted at t, is defined by
F(t, T) := -
log P(t, T)
T
.

  

Source: Applebaum, David - Department of Probability and Statistics, University of Sheffield

 

Collections: Mathematics