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 inversely related 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 on 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-coupon bonds, T-bills, notes, and Eurodollar deposits using a bootstrapping process. Using Python, we used...