In this chapter, we focused on interest-rate and related derivative pricing with Python. Most bonds, such as US Treasury bonds, pay a fixed amount of interest semi-annually, while other bonds may pay quarterly or annually. It is a characteristic of bonds that their prices are closely related to current interest-rate levels in an inverse manner. The normal or positive yield curve, where long-term interest rates are higher than short-term interest rates, is said to be upward sloping. In certain economic conditions, the yield curve can be inverted and is said to be downward sloping.
A zero-coupon bond is a bond that pays no coupons during its lifetime, except upon maturity when the principal or face value is repaid. We implemented a simple zero-coupon bond calculator in Python.
The yield curve can be derived from the short-term zero or spot rates of securities, such as zero...
