1. Post-Crisis Fixed-Income Markets

The fixed income market is a sector of the global financial market in which various interest rate-sensitive instruments are traded, such as bonds, forward rate agreements, various forms of swaps, swaptions, caps and floors. It makes up a large portion of the global financial market. The recent financial crisis, of which the key features are counterparty and liquidity/funding risk, has heavily impacted the entire financial market and the fixed income market in particular. Inspection of quoted interest rates and derivative prices reveals that some classical relationships have broken down, which has induced the actors on the fixed income market to model as separate objects rates that correspond to different maturities (multi-curve models). In this chapter we review the basic notions and concepts in use before the crisis and describe how they have found an extension to the multi-curve setup.