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0answers
44 views

Dual discounted forward curve

I was wondering how to calculate the forward rates based on OIS discounting for the half year terms. I know how to do this for the full year terms -> just making sure that the two legs are equal to ...
1
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1answer
71 views

Long Forward Rate Agreement, short Eurodollar futures

For this question If you are long a FRA and short a ED future with the same fixing dates, do you have positive convexity or negative convexity? The answer is positive convexity, because a ...
0
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1answer
18 views

Show that being Long a caplet & short floorlet (both with strike price K) is equivalent to a FRA where you pay the fixed rate K

How do you show that being long a caplet and short a floorlet (both with strike K) is equivalent to a Forward Rate Agreement where you pay the fixed rate K?
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1answer
32 views

Using Forward or Spot rates for NPV?

I have to calculate the NPV for Capital Budgeting in a project with annual cash flows discounted by a risk - free interest rates 1.Instead of using a constant interest rate, should it better to use ...
0
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1answer
35 views

Why is the forward rate used for the underlying in Black's model?

Why is the forward rate suitable for being used as the underlying in Black's model? Thanks
4
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1answer
180 views

U.S. Rate Hike Prediction

In a recent ft.com video an analyst mentioned that markets postponed their Fed rate hike expectation from September to around November 2015 due to the CNY devaluation, based on the "shift" of some ...
3
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3answers
96 views

Why is the spot price not used as the forward price when a forward contract is created?

If the initial value of a forward contract is zero, surely the forward price used would be the spot price at the time the contract was created? However, my notes tell me that the forward price F, at ...
2
votes
1answer
50 views

Likelihood of a caplet ending in the money

with what likelihood would one expect an ATM caplet to end up in the money? Just as a very rough guess, from real world experience. When I consider N(d2) from the Black formula, for spot = strike = ...
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vote
2answers
81 views

Using IRR to calculate future value of cashflow

Discounting a cashflow using given forward rates will result in the following present value: PV = 102.875 = ${5\over (1+3\%)}$ + ${5\over (1+3\%)(1+4\%)}$ + ${105\over (1+3\%)(1+4\%)(1+5\%)}$ where ...
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0answers
35 views

How should I use central banks rates in order to compute 2-day forward exchange rate on EURUSD

Good morning, I would like to compute a 2-day forward exchange rate on EURUSD. For that, I have historical data on EURUSD spot price, and I know that theoretically, when maturity is T we have : ...
1
vote
1answer
158 views

Forward Curves and Par Yield Curves

I'm recently reading a research paper on the yield curve by Salomon brothers and in it it states that when the forward curve is above the par yield curve, it is seen as cheaper. If for example, the ...
2
votes
1answer
133 views

Differential of stochastic term

Question 1: How does one come up with the equation in the red box below? It looks like some kind product rule, but I'm not sure how to apply Ito's lemma here. Bjork doesn't seem to explain it ...
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1answer
44 views

Differential equation involving bond price and forward rate

Given forward rate f(t,T) and bond price P(t,T) where $f(t,T) = - \frac{\partial}{\partial T} \ln P(t,T)$, $P(T,T) = 1 = P(t,t)$, T>0 and $t \in [0,T]$ Does it follow that $P(t,T) = ...
4
votes
2answers
295 views

Practical implementation of Libor Market Model

I am trying to implement a project about the BGM model, suggested in the book "The Concepts and Practice of mathematical finance" by Mark Joshi. My question is related to the forward volatility ...
0
votes
1answer
235 views

Factoring risk premium in to Forward Rate calculation

This is a self study question. I'm calculating a forward rate. Specifically, I have that in a country X, the Spot Rate is 5X/1US. I also have that the 1 year interest rate is 13% in country X and ...
2
votes
1answer
61 views

Bond Interest Rate Swap Growth Rate [closed]

this should not be here because it shouldn't be here forever and eve
2
votes
0answers
648 views

How to compute for basis adjusted forward rate?

To give you a brief background, I'm valuing a fixed-for-float Interest Rate Swap (IRS) using Bloomberg. I put in a notional amount in (USD) and a assigned 6MO USD LIBOR as the reference index for the ...
2
votes
1answer
173 views

Formula for the forward rates?

I'm reading a book about interest rate modelling. It states the following formula P(0,T) = exp(-sum of the forward rates) But I thought it's the average of the forward rates?
1
vote
1answer
352 views

forward vs spot simply-compounded spot interest rate

Question about forward vs spot simply-compounded spot interest rate.Some definitions $P(a,b)$ a zero coupond price at time $a$ and maturity $b$ $L(a,b)$ simply compounded spot interest rate set at ...
2
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0answers
109 views

Simple Forward Interest Rate Proof

Just trying to check my logic here: Let $Z(t,T)$ be a Zero-Coupon Bond with maturity $T$ bought at time $t$, $S_m$ be the spot interest rate for time $m$ and $S_n$ for time $n$ respectively, where $n ...
3
votes
1answer
142 views

meaning of discount term in FRA value

Consider a forward rate agreement on LIBOR (say), which starts 2 months from now, expires after 3 months and has strike $K$, and is based on $3M$ LIBOR -- $FRA_{2\times 5}$. Now the present value of ...
2
votes
1answer
406 views

Why are multiple custom curves (swap) built for one desk?

Currently in a journey of learning and getting my hands a bit dirty with Interest Rate Swaps. Why there are multiple customized curves built by many even within one desk? For e.g. Short Rates desk ...
0
votes
1answer
149 views

Derive instantaneous forward rate

Given that $P(0,T)=e^{-RT}$, how does one get the formula for the instantaneous forward rate below? Specifically, how does one get to the partial derivative in the formula? I'm sure the answer is ...
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votes
0answers
446 views

Convexity of Portfolio Containing Eurodollar Future and Forward Rate Agreement

Assume an individual is a buyer, i.e., long, of one Forward Rate Agreement and a seller, i.e., short, of one Eurodollar Futures contract. Does the collective portfolio have positive or negative ...
3
votes
1answer
3k views

Calculating instantaneous forward rate from zero-coupon yield curve

I have a big dataset containing zero-coupon bond yields with different relative maturities. I fix a time horizon on my dataset and I want to calculate instantaneous forward rate. I'm going to write ...