ABSTRACT
In this section, we study in continuous time bonds or fixed income instruments of a financial market. In Chapter 2, we introduced bonds as basic securities with an obligation to make certain payments at certain future times. These payments are called coupons. Denote 0 < t1 < t2 < . . . < tN = T the times when coupon payments c1, . . . , cN are made. The last payment cN is usually denoted A and is referred to as the principal (nominal value, par value) of the bond. The bond yields a profit that is fully characterized by these two sequences (ti)i=1,...,N and (ci)i=1,...,N . Time t = 0 is the initial time of the bond and T = tN is its maturity time. The time interval between current time t and the maturity time T is referred to as time to maturity.
