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Interest Rate Instruments: Valuation with the BSM ModelÉvaluation BSM (modèle) , Hybrids Hybrids, and Structured Produits structurés Products Structured products

In: Capital Market Finance

Author

Listed:
  • Patrice Poncet

    (ESSEC Business School)

  • Roland Portait

    (ESSEC Business School)

Abstract

This chapter presents more complex products than floating rate instruments and vanilla interest rate swaps. Valuation of the products with optional provisions uses the Black–Scholes–Merton (BSM) model adapted to the context of stochastic interest rates. Section 16.1 presents the principles of option valuation adapted to this context (using the forward-neutral expectation of the payoff) and several versions of the generalized BSM model. Section 16.2 is devoted to swaps and swaptions. Section 16.3 presents caps and floors and Sect. 16.4 combinations, hybrid and structured products, and the financial engineering needed to study these instruments. Section 16.5 is devoted to hybrid products embedding options or optional clauses, such as convertible bonds.

Suggested Citation

  • Patrice Poncet & Roland Portait, 2022. "Interest Rate Instruments: Valuation with the BSM ModelÉvaluation BSM (modèle) , Hybrids Hybrids, and Structured Produits structurés Products Structured products," Springer Texts in Business and Economics, in: Capital Market Finance, chapter 16, pages 667-717, Springer.
    • Handle: RePEc:spr:sptchp:978-3-030-84600-8_16
    DOI: 10.1007/978-3-030-84600-8_16
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