In this chapter we consider the pricing of caplets, caps, and swaptions, using change of nume´raire and forward swap measures.

The maturity dates are arranged according to a discrete tenor structure

{0 = T0 < T1 < T2 < · · · < Tn}. An example of forward interest rate curve data is given in the table of Figure 12.1, which contains the values of (T1, T2, . . . , T23) and of {f(t, t+ Ti, t+ Ti + δ)}i=1,...,23, with t = 07/05/2003 and δ = six months.