We introduce the basic concepts of quantitative pricing for interest-rate derivatives without optionality, focusing on the risk-free discount curve. We show how to compute the non-arbitrage value of simple interest-rate derivatives from the knowledge of the discount factor. The type of interest-rate derivatives that can be computed in this way include inter-bank deposits, interest-rate swaps, and foreign-exchange forward contracts. Finally, we describe in details the bootstrap of the discount curve from a series of quoted deposit and swap rates.
Keywords: interest-rate derivatives, interest rates, derivatives, pricing functions, bond pricing, swaps, irs, interest-rate swaps, accounting conventions, bank holidays, compounding, fra, libor rates
Pdf file: intro-fixed-income-derivatives.pdfintro-fixed-income-derivatives