O'Reilly logo

Financial Calculus by Martin Baxter, Andrew Rennie

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

Chapter 5

Interest rates

 

 

 

Time is money. A dollar today is better than a dollar tomorrow. And a dollar tomorrow is better than a dollar next year. But just how much is that time worth – is every day worth the same or will the price of money change from time to time?

The interest rate market is where the price of money is set – how much does it cost to have money tomorrow, money in a year, money in ten years? Previously we made the modelling assumption that the cost of money is constant, but this isn’t actually so. The price of money over a term depends not only on the length of the term, but also on the moment-to-moment random fluctuations of the interest rate market. In this way, money behaves just like a stock with a noisy price driven ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required