An interest rate is the rate at which interest is paid by a borrower (debtor) for the use of money that they borrow from a lender (creditor).

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The calculation of NIBID rate from 2013 by using NIBOR rate (UIP)

I need to calculate the NIBID rates from 2013. I have the NIBOR as a starting point and some indications but I am still quite confused. I found some advices online, but it does not seem to get me the ...
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8 views

What equal installment of annual payment will discharge a debt which is due as Rs. 848 at the end of 4 years at 4% per annum simple interest? [on hold]

The above question can be calculated by using the formula x=100P/(100n+n(n−1)r/2), which gives the result = 200. My doubt is that 200*4 gives 800. So when the balance (848-800) 48 will be paid?
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23 views

Whats the formula to calculate the FV, incorporating monthly deposits?

I need a Formula to calculate the future value of an investment based on current principal, interest, number of years, compounding interval (times annually) and monthly deposit. So basically ...
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1answer
54 views

Derive OIS rate from IRS rate and Fed Funds/Libor basis spread

For example I have 7Y interest rate swap rate and 7Y Fed funds/Libor basis spread. What is the step-by-step procedure to derive OIS rate from these two?
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1answer
54 views

Weights Blowing up in PCA

I'm using daily settlement data to get yield levels for a couple of products. From this data I am doing PCA on a rolling collection of the yield levels. I have been using sci-kit learn's PCA function, ...
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1answer
45 views

Bond price in Ho-Lee Model

I know Ho-Lee model and want to extract the price at $t$, of a European call option with strike price $K$ and exercise date $T$, on an underlying $S$-bond, but I don't know what way should I choose: ...
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1answer
145 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 ...
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27 views

How is the 50% chance that the Fed will increase borrowing costs on Sept. 16-17 calculated from bond futures? [duplicate]

http://www.bloomberg.com/news/articles/2015-08-14/bond-market-says-chinese-yuan-won-t-stop-the-fed-from-moving Futures contracts indicate traders see a 50 percent chance the U.S. central bank ...
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23 views

Influencing factors on credit

There was the following question on an exam: Which factors are influencing the effective interest rate of a credit? loan amount fees interest rate running time I would have said ...
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41 views

Fed Funds Rate: longer maturities

FFR published by Fed Bank of NY is the average rate US banks charge each other for the overnight loans of their reserves required by the Fed regulations. Since Fed acts similar to a clearing house ...
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219 views

How does one estimate the probability of the Fed increasing its benchmark rate based on Fed funds futures?

How was this 67% probability calculated from Fed funds futures? Fed funds futures show a 67 percent chance the central bank will increase its benchmark rate by year-end from virtually zero, ...
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82 views

Monte Carlo, convexity and Risk-Neutral ZCB Pricing

I've built a simplistic Excel monte carlo model to price a zero-coupon bond, but it came up with a slightly unepxected result so I wanted to confirm whether my maths is just a little rusty or my model ...
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14 views

negative yield (interest rate) and Option Pricing [duplicate]

If i have negative yield (interest rate) can I still proceed with Standard Black and Scholes or Simple Binomial Model? any Adjustment is required to the model? how does it effect the pricing model in ...
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1answer
35 views

Boundary Condition for Convertible Bond under Two-factor Model Interest Rate

I want to find Boundary conditions for Convertible Bond under Two-factor Model Interest Rate.The portfolio contains stock where stochastic differential equation for the stock price is \begin{align} ...
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2answers
178 views

Speed of mean reversion of an interest rate model

I would like to have a bit more of intuition about the concept of "speed of mean reversion" for an interest rate model, e.g. Vasicek or CIR. In particular, is a negative speed of mean reversion ...
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1answer
52 views

Finding the Interest Compounded with Bank Advertising Yield

A bank is advertising 9.5% accounts that yield 9.84% annually. How often is the interest compounded. Answer is Quarterly. I've been trying to look for the formula for this; it doesnt seem to be ...
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1answer
112 views

Ho-Lee Model; Please explain

I'm having trouble with the Ho-Lee model for short rates and differentiating between how to find the values for the free parameter λ versus using the model to predict future rates. The Ho-Lee model ...
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1answer
105 views

Why is my YTM incorrect? How does accrued interest play into Yield to Maturity?

I'm writing some software that includes a feature to calculate Yield to Maturity for a Bond. I'm using an HP 10bii Financial Calculator to double check the answers produced by my software. I'm running ...
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42 views

Benchmarking option pricing under stochastic interest rates

I priced a long-term option (10 or 20 years) using two different models: one assumes constant interest rates, the other assumes stochastic interest rates. Is there a way (e.g. a benchmark) to ...
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2answers
56 views

Reproducing levels when PCA has been done on changes

I want to use PCA for rich/cheap analysis of interest rates. For this I did the PCA on the time series of daily difference in interest rates, which is stationary. I cant do pca on levels, as they are ...
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2answers
172 views

Basic LIBOR curve question

I'm new to the quant finance and have a very basic question about LIBOR curve. LIBOR is published every day for 4 different tenors (1M, 3M, 6M, 1Y), and each rate means how much annual interest ...
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1answer
81 views

Negative Interest Rate & Basis Models

Since markets are showing negative interest rate, I'm forced to find a model that can catch this behaviour. Because of that, I have implemented and calibrated the G2++ (or the Hull-White 2 Factors) ...
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1answer
113 views

Black-Scholes under stochastic interest rates

I'm trying to implement the Black-Scholes formula to price a call option under stochastic interest rates. Following the book of McLeish (2005), the formula is given by (assuming interest rates are ...
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1answer
140 views

Why using the swap curve as riskfree rate and no longer gov bonds?

I recently had an interview where I was asked what to use as risk-free rate. In all my textbooks it was always the US treasury yield curve. But they said no its now the "swap curve". Why is the swap ...
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1answer
138 views

What's Risk-Neutral in an Interest Rate Model?

In Shreve II, on p. 265 he states the Hull-White interest rate model as $$ dR(u) = \left( a(u) - b(u)R(u)\right) dt + \sigma(u)d\tilde{W}(u), $$ and then mentions "...$\tilde{W}(u)$ is a Brownian ...
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1answer
40 views

How do I interpret yield curve data points given by the US Treasury?

Given the Daily US Treasury Yield Curve Rates for a specific date I will fit the curve with the cubic spline method, but first I need to know how to use the data points given by the Treasury. For ...
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1answer
87 views

How to check that an interest rate curve is arbitrage free

I have 2 interest rate curves (LIBOR 3M and OIS). I want to create stress scenarios for those two curves. Is it possible that some scenarios will make my term structure arbitrageable? How can I test ...
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18 views

Calculation of bond spot rates [closed]

the cash prices of six months and one year treasury bills are \$120 and \$115 respectively. A 1.5 years bond that will pay coupons of \$5 every six months currently sells for \$121. A 2 years bond ...
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1answer
130 views

Pricing a zero with Vasicek model

I'm trying to understand bond pricing with the Vasicek interest rate model. I'm using McDonald's book for this purpose (not homework). Recall that Vasicek dynamics are \begin{equation*} ...
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1answer
208 views

Models crumbling down due to negative (nominal) interest rates

Dear Stackexchange users, given that the negative interest rates on a lot of sovereign bonds with maturity under 10 years are trading in the negative (nominal) interest rate territory (recently also ...
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76 views

Calibration of Heston version of CIR

I'd like to calibrate a variant of Heston model for interest rates which is describe by this couple of SDE \begin{aligned}dr_t&=a(b-r_t)+\sqrt{r_t}\sigma_t dW_t^1 \\ ...
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1answer
338 views

The effect of negative interest rates on derivative pricing

I am trying to get an overview of the impact on negative interest rates on financial products (in general). For the time being I distinguished the following products Vanilla options Exotic options ...
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1answer
69 views

Determining swaption prices using the characteristic function

There exist multiple techniques to determine call option prices that make use of the characteristic function. These techniques boil down to some integral expression of the option price in terms of the ...
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45 views

what data to use to compare the interest rate among different currencies?

Very new to fixed income signals. I am a little confused about which data to use to compare interest rate among different currencies. For example, I am interested in compare interest rate in the ...
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76 views

Ornstein-Uhlenbeck / Vasicek and no-arbitrage

I'm working my way through a common question which asks to derive the solution, the mean and the variance to the following Ornstein-Uhlenbeck process: \begin{align} dS_t = (\theta(t) - \beta\,S_t)\,dt ...
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1answer
126 views

Why future (forward) volatility smile is important to path dependent option?

I was wondering why future volatility smile is important to path dependent option and American type option such as Bermudan swaption. It would be best if someone could provide a reference article as ...
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1answer
198 views

What is the difference between a benchmark yield curve, funding curve and a basis spread curve?

I am trying to understand why these curves are important, and what they are used for in the industry today (if not at all).
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1answer
85 views

What is the use of computing the par yield?

I have learnt how to compute par yields in class, but I am not certain when knowing this would be of use and by Professor himself said it's a somewhat useless concept. What is the use of computing the ...
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2answers
114 views

Where can I get equivalent of 3 months libor or swap historical data?

Please note: I have already checked your standard "Historical data sources" link, but it does not have the data I need: I am looking for 5 years of libor/swap data for major currencies. Daily, or ...
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41 views

How to implement an Interest rate neutral strategy using options?

Intuitively one would think that investing equal amounts in an ETF such as TLT and an short ETF such as TBF (with some factor for the interest rate payout of the long fund) should result in a interest ...
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98 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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48 views

Incorrect characterization of spot rate?

Is the t in the red boxed $R(t,T)$ supposed to be the same as the S in the green boxed $R(S,T)$?
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1answer
168 views

Bootstrapping zero-rates from AUD swap rates

I have a pay fixed / receive floating interest-rate-swap on the AUD BBSY that I'd like to price for the purposes of accounting. I understand the general process to be as follows (assuming ...
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3answers
215 views

Deposit vs. LIBOR rates? (Bloomberg/SuperDerivatives)

I noticed that Bloomberg and SuperDerivatives both use "Deposit Rates" for the calculation of forward points for currencies. I couldn't find anything online that describes precisely where these rates ...
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1answer
192 views

What is the difference between BBSW and AUD LIBOR?

I understand that BBSW is the reference rate for financial instruments while AUD LIBOR is the interbank rate benchmark. However, since AUD LIBOR has been discontinued due to the rigging scandal, can ...
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1answer
105 views

Cash flow diagram, interest rate inflow series

I have a econ midterm coming up soon and stumbled upon this question. My approach is: 2C=800/(1.12^2)+1200/(1.12^6)=125.71 or C=1245.71/2=622.85 But I have a gut feeling this is wrong. I believe the ...
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26 views

Why the growth of the American Economy is going to cause the Fed to raise interest rates?

Due the growth of the American economy the Fed have published that interest rates are likely to increase. Why is that the response of the Fed?
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1answer
196 views

Why Markov Functional Models (Hunt 2000) are not yet so popular?

I refer to MFM introduced by Hunt [2000]. These models can be seen a subset of interest rate market models. MFM allow us to describe the term structure elements using a set a functions of a ...
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258 views

How can an inverted yield curve in a liquid market exist?

Take a liquid market like US T-bills, notes and bonds... Who would want a long-term security that yielded less than the short? Even if someone is a long-term lender, why wouldn't they hold the ...
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106 views

For the Dothan model $E^Q[B(t)]=\infty$?

How can I show that for the Dothan short rate model We have $E^Q[B(t)]=\infty$ ? Where Dothan short rate model is " $dr_t=ar_tdt+\sigma r_tdW_t$ ". I appreciate any help. Thanks.