Chapter 20 Fixed income pricing This chapter surveys the literature on fixed income pricing models including dynamic term structure models and interest rate sensitive derivative pricing models. Our overview of conceptual approaches highlights the tradeoffs that have emerged between the complexity of the probability model for the “risk factors≓ data availability the pricing objective and the tractability of the resulting pricing model. Initially we examine term structure models that price both bonds (default free and defaultable) and fixed income derivatives with payoffs in terms of prices or yields on these bonds. These include affine quadratic Gaussian and various stochastic volatility models of the term structure. Then we turn to models designed to price fixed income derivatives taking the current yield curve as an input into the pricing framework. These include models based on forward rates and the LIBOR and Swaption Market models.