Applied Aspects of Modeling Interest Rates and Constructing Yield Curves

In modern financial practice, investors strive to improve investment strategies in conditions of increased market competition. Issuers of structured products develop solutions that meet the various needs of investors. Nowadays complex products with variable underlying assets are designed, alongside with derivative strategies that form a specific risk-return profile. This study provides a comprehensive analysis of structural products with capital protection at interest rate. The risks of issuers and investors, legislative aspects of local issuance were considered, and the classification of products available on the market was given. A methodology for their construction was developed, including the evaluation of interest rate options, modeling the dynamics of the short-term interest rate. The methodology of this study includes a one-factorial Hull-White model that meets the conditions of non-arbitrage and is calibrated to the initial yield curve. The structural products considered in this paper with capital protection may be of interest to investors not only from the point of view of profitability, which depends on the dynamics of the basic interest rate, but also as interest rate risk management tools.