This book will give the reader insight into how to model yield curves in
our incomplete and imperfect financial markets. An extensive list of
yield curve models are shown and discussed. Using actual market
instruments, these models are then applied and the different yield
curves are compared. It is assumed that the reader has a basic
understanding of the financial instruments available in the market.
Various issues that have to be taken into account in practice are
discussed, like daycount conventions, business-day rules, the credit
quality of the instrument and liquidity to name but a few. It is also
shown how yield curves can be used to estimate credit spreads and
country risk premiums. Creating a yield curve model has some
implications in risk management. Specifically - the model, operational,
liquidity and basis risks are discussed.