Introduction to Interest Rates
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1. Introduction to Interest Rates
2. Exploring Compounding Interest
3. Practical Example with Compounding
4. Zero Coupon Bonds (ZCB)
5. Example of Zero Coupon Bond Pricing
6. Introduction to Forward Contracts
7. Derivative Context
8. Valuing Forward Contracts
9. Understanding Libor and Forward Rate Agreements
10. Basics of Swaps and Swaptions
11. Example of a Swap
12. Options: Calls, Puts, and Parity
Preliminaries in Finance
1. Introduction to Interest Rates
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2. Exploring Compounding Interest
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3. Practical Example with Compounding
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4. Zero Coupon Bonds (ZCB)
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5. Example of Zero Coupon Bond Pricing
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Forwards in Finance
6. Introduction to Forward Contracts
A forward contract is a derivative based on an asset's future value. The value is \( g(S_T) \) at maturity, often linked to financial assets like stocks.
7. Derivative Context
Derivatives can help manage risk by providing price certainty or exposure to different asset classes. Forward contracts are directly linked to the future performance of their underlying assets.
8. Valuing Forward Contracts
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Interest Rates and Libor
9. Understanding Libor and Forward Rate Agreements
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Swaps and Derivatives
10. Basics of Swaps and Swaptions
Swaps involve exchanging cashflows. A swaption is an option on a swap. The value depends on the fixed and floating legs, and swaption payouts are based on the difference. In swaps, the fixed leg has constant payments, while the floating leg's payments vary based on market interest rates. Swaptions often pay out based on their differences.
11. Example of a Swap
Consider an interest rate swap with a company paying 5% fixed and receiving LIBOR. If LIBOR is 3%, the fixed payer benefits from the lower rate. The value of swaps and swaptions is highly sensitive to changes in interest rates, affecting the fixed and floating legs differently.
Options and Strategies
12. Options: Calls, Puts, and Parity
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Introduction to Interest Rates