LECTURE 7 Interest Rate Models I: Short Rate Models

The first aim of a short rate model (indeed, of any interest rate model) is to price zero-coupon bonds. A zero-coupon bond (also called a discount bond) is a bond which does not pay any coupons, but which pays its nominal-, or face-, value at maturity T. The face value will usually be normalized to 1 (of whatever currency we’re working in: ................
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