### Interest raate derivatives

Derivatives : Equity derivatives or Interest rate derivatives

Of these two interest rate derivatives are difficult to price due to theier dependence on full term structure of interest rate. Unlike equity,indicies,commodities derivatives , interest rate derivatives have the whole term sturcutre of interest ratee as "underling asset " .

INterest rate derivatives can be divided into two parts : One those which depends on government issued bonds (Government debt security instruments) and second category is Money market instruments (depends on LIBOR rate)

Example of Givernment Debt Security insturments :

1.Options on Tresuries

2.Forward contract on tresuries/gilts

3.Futures on Teasuries/Gilts

Example of Money Market Instruments :

1. Eurodollar futures (base don 3 month LIBOR)

2. Short sterling futures

3. Interest rate swaps

4. cap rate agreements (higher limit on interest rate)

5. Floors (lower limit on interest rate)

6. Collars (Both Higher and Lower limit)

Of these two interest rate derivatives are difficult to price due to theier dependence on full term structure of interest rate. Unlike equity,indicies,commodities derivatives , interest rate derivatives have the whole term sturcutre of interest ratee as "underling asset " .

INterest rate derivatives can be divided into two parts : One those which depends on government issued bonds (Government debt security instruments) and second category is Money market instruments (depends on LIBOR rate)

Example of Givernment Debt Security insturments :

1.Options on Tresuries

2.Forward contract on tresuries/gilts

3.Futures on Teasuries/Gilts

Example of Money Market Instruments :

1. Eurodollar futures (base don 3 month LIBOR)

2. Short sterling futures

3. Interest rate swaps

4. cap rate agreements (higher limit on interest rate)

5. Floors (lower limit on interest rate)

6. Collars (Both Higher and Lower limit)