In this talk the process of interest rate risk management is considered. The yield curve construction is revisited and emphasis is given to aspects such as input instruments, bootstrap and interpolation. For various financial products new formulas are presented that are crucial to define sensitivities to changes in the instruments and/or in the curve rates. Such sensitivities are exploited for hedging purposes. The risk space is constructed, which eventually turns out to be a curve property, and show how to hedge any product or any portfolio of products in terms of the original curve instruments. Continue reading →