Interest rate modeling concepts, basic

Chapter 3 introduced the basic concepts of bond pricing and analysis. This chapter builds on those concepts and reviews the work conducted in those fields. Term-structure modeling is possibly the most heavily covered subject in the financial economics literature. A comprehensive summary is outside the scope of this book. This chapter, however, attempts to give a solid background that should allow interested readers to deepen their understanding by referring to the accessible texts listed in the References section. This chapter reviews the best-known interest rate models. The following one discusses some of the techniques used to fit a smooth yield curve to market-observed bond yields. 

In Chapter 4, it was noted that linear viscoelastic behavior is observed only in deformations that are very small or very slow. The response of a polymer to large, rapid deformations is nonlinear, which means that the stress depends on the magnitude, the rate and the kinematics of the deformation. Thus, the Boltzmann superposition principle is no longer valid, and nonlinear viscoelastic behavior cannot be predicted from linear properties. There exists no general model, i.e., no universal constitutive equation or rheological equation of state that describes all nonlinear behavior. The constitutive equations that have been developed are of two basic types empirical continuum models, and those based on a molecular theory. We will briefly describe several examples of each type in this chapter, but since our primary objective is to relate rheological behavior to molecular structure, we will be most interested in models based on molecular phenomena. The most successful molecular models to date are those based on the concept of a molecule in a tube, which was introduced in Chapter 6. We therefore begin this chapter with a brief exposition of how nonlinear phenomena are represented in tube models. A much more complete discussion of these models will be provided in Chapter 11. 

Whereas many scientists shared Mulliken s initial skepticism regarding the practical role of theory in solving problems in chemistry and physics, the work of London (6) on dispersion forces in 1930 and Hbckel s 7t-electron theory in 1931 (7) continued to attract the interest of many, including a young scientist named Frank Westheimer who, drawing on the physics of internal motions as detailed by Pitzer (8), first applied the basic concepts of what is now called molecular mechanics to compute the rates of the racemization of ortho-dibromobiphenyls. The 1946 publication (9) of these results would lay the foundation for Westheimer s own systematic conformational analysis studies (10) as well as for many others, eg, Hendrickson s (11) and Allinger s (12). These scientists would utilize basic Newtonian mechanics coupled with concepts from spectroscopy (13,14) to develop nonquantum mechanical models of structures, energies, and reactivity. 

The general concept of the atmospheric transport and deposition computational method is that the concentration of any substance determined on the basis of its emissions, is subsequently transported by (averaged) wind flow and dispersed over the impacted area due to atmospheric turbulence. Basically, the rate of substance removal from the atmosphere by wet and dry deposition and photochemical degradation is described by general model algorithms. The transport and dispersion of HM in the atmosphere are assumed to be similar to those for other air pollutants, for instance, such as SO2 and smog compounds (Pacina et al, 1993 de Leeuw, 1994, EMEP/MSC-E, 1996 Dutchak et al, 1998). Based on such an approach, the computational results of sulfur deposition over the area of interest obtained by other authors might be particularly used for the estimation of HM depositions. 

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