The Yield Curve
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The uncertainty attached to the future movements of interest rates is an important part of the theory of financial decision making. Most agents are risk-averse, and risk is linked in particular to interest rates. Investment decisions and asset/liability management are often very sensitive to perturbations of the yield curve. To hedge interest rate risk, the markets use increasingly complicated financial products (forward contracts, futures contracts, options on contracts). These constitute the forward markets.
KeywordsRisk Premium Yield Curve Price Process Forward Rate Future Contract
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