Editing Interest rate derivative (section)

==Types==

The most basic subclassification of interest rate derivatives (IRDs) is to define '''linear''' and '''non-linear'''.
Further classification of the above is then made to define '''vanilla''' (or standard) IRDs and '''exotic''' IRDs; see [[exotic derivative]].

===Linear and non-linear===
Linear IRDs are those whose net present values (PVs) are overwhelmingly (although not necessarily entirely) dictated by and undergo changes approximately proportional to the one-to-one movement of the underlying interest rate index. Examples of linear IRDs are; [[interest rate swap|interest rate swaps (IRSs)]], [[forward rate agreement|forward rate agreements (FRAs)]], [[zero coupon swap|zero coupon swaps (ZCSs)]], [[cross currency swap|cross-currency basis swaps (XCSs)]] and [[single currency basis swap|single currency basis swaps (SBSs)]].

Non-linear IRDs form the set of remaining products. Those whose PVs are commonly dictated by more than the one-to-one movement of the underlying interest rate index. Examples of non-linear IRDs are; [[swaption]]s, [[interest rate cap|interest rate caps and floors]] and [[constant maturity swap|constant maturity swaps (CMSs)]]. These products' PVs are reliant upon volatility so their pricing is often more complex as is the nature of their risk management.

===Vanilla and exotic===
The categorisation of linear and non-linear and vanilla and exotic is not universally acknowledged and a number of products might exist that can be arguably assigned to different categories. These terms may also overlap. 
"Vanilla", in "vanilla IRSs" and "vanilla swaptions", is often taken to mean the basic, most liquid and commonly traded variants of those products.

Exotic is usually used to define a feature that is an extension to an IRD type. For example, an [[In-arrears|in-arrears IRS]] is a genuine example of an exotic IRS, whereas an IRS whose structure was the same as vanilla but whose start and end dates might be unconventional, would not generally be classed as exotic. Typically this would be referred to as a bespoke IRS (or customised IRS). [[Bermudan option|Bermudan swaptions]] are examples of swaption extensions that qualify as exotic variants.

Other products that are generally classed as exotics are [[power reverse dual currency note]] (PRDC or Turbo), [[target redemption note]] (TARN), CMS steepener [http://www.risk.net/asia-risk/feature/1496874/rate-steepeners-rise], Snowball (finance),<ref>{{cite web|url=http://www.fincad.com/derivatives-resources/wiki/snowballs.aspx|title=Snowballs|publisher=FINCAD|access-date=24 July 2015}}</ref><ref>{{cite web|url=http://www.bloombergview.com/articles/2014-05-02/portuguese-train-company-was-run-over-by-a-snowball|title=Portuguese Train Company Was Run Over by a Snowball|last=Levine|first=Matt|date=2014-05-02|publisher=Bloomberg|access-date=24 July 2015}}</ref> [[Inverse floating rate note|Inverse floater]], [[Zero-coupon bond|Strips]] of [[Collateralized mortgage obligation]], Ratchet caps and floors, and Cross currency swaptions.