ABSTRACT
This introduction presents an overview of the key concepts discussed in the subsequent chapters of this book. The book explores an approach for understanding and analyzing fixed income securities and interest rate options that has revolutionized Wall Street. It provides a self-contained study of the new approach for pricing and hedging fixed income securities and interest rate options. The book also explores implementation and estimation issues, as well as extensions of the Heath, Jarrow, and Morton (HJM) model to foreign currency derivatives, credit derivatives, and commodity derivatives. It also provides the institutional description of the fixed income security and interest rate derivative markets. The book presents the HJM model’s theoretical framework. It explains the notation, terminology, and assumptions used in the remainder of the text. The book explores various applications of the pricing and hedging technology. It examines the pricing of coupon bonds. The book investigates the pricing of options on bonds.
