Introduction

An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. Interest’s rates are fundamental to a capitalist society. Interest rates are normally expressed as a percentage rate over the period of one year. Interest rates are also a tool of monetary policy and are taken into account when dealing with variables like investment, inflation, and unemployment. In traditional actuarial investigations, the interest rate is assumed to be deterministic and hence there is only one source of uncertainty, the mortality uncertainty, to be considered. Concerns about the effects of including a stochastic interest rate in the model have been growing during the last decade. The literature has tended to focus on annuities and the model adopted to describe the interest rate uncertainty, in a continuous framework, has usually involved the use of a Brownian motion (Beekman and Fuelling,1990- 1991), (Dufresne, 1990), (De Schepper et al, 1992), (Parker, 1994), (Perry and Stadje, 2001), (Perry et al, 2003). When the market rates are high, volatility is expected to be high or when interest rates are low, volatility will be low. (Brennan & Schwartz, 1980; Chan et al., 1992; Cox et al., 1985; Nowman, 1997; Nowman&Staikouras, 1998)

A derivative which has as an underlie the ability to pay or receive a given amount of money at a given interest rate. Interest rate derivatives are the most popular kind of derivative, and include interest rate swaps and forex swaps. Features of interest rate swaps and forex swaps are swap of fixed-for-floating interest rate, a master agreement for fixed rate interest, a floating or variable rate which is reset periodically, a set-off exercise at every reset time to swap a fixed-for-floating interest rate and floating interest rate is to based on a certain benchmark (Dr. Mohd Daud Bakar, 1971)

Interest rate swaps is an exchange of interest payments on a specific principal amount. This is a counterparty agreement, and so can be standardized to the requirements of the parties involved. An interest rate swap usually involves just two parties, but occasionally involves more. Often, an interest rate swap involves exchanging a fixed amount per payment period for a payment that is not fixed (the floating side of the swap would usually be linked to another interest rate, often the LIBOR) an interest rate swap, the principal amount is never exchanged; it is just a notional principal amount (D. K. MalhotraIn, 1998).

Background research

Richard J. Rendleman, Jr. (1949) is a composer whose works have been performed by The North Carolina Symphony, The South Carolina Philharmonic Orchestra, The United States Navy Band and a number of other orchestras, chamber groups and choral ensembles.