The interest-rates tag has no wiki summary.
3
votes
0answers
42 views
Optimal mortgage rate strategy
When buying a mortgage, you can choose to "lock in" a rate at any point within 60 days of your closing date. Once locked in, you can't revert.
This makes it a secretary problem - in the traditional ...
-4
votes
0answers
39 views
Comparing Investments: Selling land vs. starting a business [closed]
I have a situation where I need to compare some investing alternatives.
We and my partners own a piece of land with high commercial value, that was bought 7 years ago. Now the real estate market ...
1
vote
1answer
54 views
When calculating CIP between EU and US, which interest rates data to use?
I am wondering which data to use to test the Covered Interest Rate Parity between Europe and the United States. Recap that for the CIP to hold, it should mean that
F/S = (1+r)/(1+r*) where
F = the ...
1
vote
1answer
121 views
How to download risk free rate?
I've been trying to download the national interest rates for some countries. When i use Datastream, it only gives me the currency return (while i need yield).
Can someone please tell how to ...
0
votes
1answer
62 views
What is the meaning of the discounted process defined from the interest rate process?
Assume a money market has interest rate process $R(t)$. In Shreve's Stochastic Calculus for Finance II, formula (5.2.17) on page 215 defines the discounted process as
$$
D(t) = e^{-\int_0^t R(s) ds}.
...
3
votes
2answers
197 views
Black-Scholes and Fundamentals
So basically
$dS_t=\mu S_tdt+\sigma S_tdWt$
and
$\mu=r-\frac12\sigma^2$
I have just been thinking about this later equation. This is very interesting because it ties together risk-free ...
1
vote
1answer
132 views
Yield on Fixed income futures
I am trying to get a simplified model of the DV01 for the US 10YR Note futures but I cant figure out what the current yield is. When I back out the implied interest rate on the current TYM3 futures ...
1
vote
1answer
47 views
Annual Percentage Rate and Yield
I found references relative to US where the Nominal Annual Percentage Rate or simply APR is defined as the simple interest rate (i.e. proportional to time and without compounding).
Instead the ...
3
votes
0answers
113 views
compute time from FX forward, how use DEPO rates?
assume I have following delta-term vol data from broker:
...
4
votes
4answers
226 views
how to derive yield curve from interest rate swap?
According to some textbooks, to derive the yield curve, quote
overnight to 1 week: rates from interbank money market deposit,
1 month to 1 year: LIBOR;
1 year to 7 years: Interest Rate Swap;
7 ...
2
votes
2answers
90 views
Fair swap rate of an amortizing swap
Recently I came across the problem of amortizing swaps. This is an agreement, where fixed payments and floating payments (e.g. 3-months LIBOR + spread) are exchanged based on a notional that is ...
1
vote
3answers
168 views
How to hedge the fixed leg of a swap contract?
I happened to get this question for Fixed Income Swap contract. (let's assume it's it's not cross currency).
If the fixed leg is paying 10% interest rate in this contract, but in the market the ...
2
votes
3answers
271 views
Is there an Australian Interbank Rate?
Most widely used Interbank Rates are LIBOR, EURIBOR. Then I read online on SIBOR (Singapore).
It says Canda, US are following LIBOR as well. So for Australia, is there a dedicated interbank rate like ...
5
votes
2answers
357 views
Why does the future price dominate the forward price and why doesn't the long rate fall?
There are two questions left about the book Term Structure: A graduate Course by Damir Filipovic, which bother me. The first one is about the Theorem, that the long rate never falls (p. 108). Why is ...
5
votes
1answer
142 views
How to derive the formula of a European Libor call option in a Libor Market Model?
I am struggling with the following two mathematical statements. The first is from the book "Term-structure Models: A Graduate Course - Damir Filipović" Suppose we have a deterministic function ...
-2
votes
1answer
123 views
Yield Curve construction [duplicate]
Possible Duplicate:
What data sources are available online?
http://en.wikipedia.org/wiki/Yield_curve_construction#Construction_of_the_full_yield_curve_from_market_data
I understand there ...
7
votes
3answers
237 views
What is the relationship between Forward measures and LMM?
I am reading the book "Term-structure Models: A Graduate Course" by D. Filipovic. In chapter 7 they define the $T$-Forward measure through the density process
...
8
votes
3answers
328 views
Pricing in HJM framework
As mentioned in earlier question, I am a math student, who attained a course in interest rate theory. However I have some question how these things actually work in reality.
So assume we are working ...
4
votes
1answer
196 views
Derive a short rate model from HJM
Suppose we are assuming the HJM framework. My question is, if it is possible to derive for different choices of the volatility function $\sigma$ (and hence of the drift function) the most common short ...
3
votes
1answer
81 views
Value options when the currency’s risk free rate is negative?
How would you handle a negative interest rate in index/equity options valuation?
An example would be negative rates for short term maturities for Swiss Frank (CHF).
1
vote
1answer
137 views
BDT model implementation
I am looking for a nice and readable description of how to implement BDT model: $d log(r(t)) = [\theta(t)-\frac{\sigma'(t)}{\sigma(t)}log(r(t))]dt + \sigma(t) dW$.
I assume I already have ...
2
votes
0answers
112 views
Yield Curve Volatility
Let you have several issuers, and let each issuer have its yield curve built up with liquid plain vanilla fixed rate bonds.
Each yield curve has its slope and its curvature, and they obviously change ...
1
vote
0answers
80 views
Eurdollar Futures
Trying to understand the Eurdollar market a little better. I understand it's the market for dollar denominated deposits outside the US (not just in Europe). They are unregulated and not subject to ...
5
votes
4answers
305 views
Regressor: Nominal return, continuous return or first difference?
Suppose the application is linear models in financial econometrics. If we want to analyze stocks, the standard approach is to take the continuous/log return: $\ln{ \frac{P_t}{P_{t-1}} }$. Suppose, ...
5
votes
0answers
100 views
Replicating portfolio and risk-neutral pricing for interest rate options
For equity options, the pricing of options depends on the existence of a replicating portfolio, so you can price the option as the constituents of that replicating portfolio. However, I am not seeing ...
3
votes
0answers
123 views
How does one estimate theta in the Ho-Lee model from a yield curve?
I have a yield curve constructed using linear interpolation with data points every 3-months for US treasuries.
I would like to use that calibrate a Ho-Lee model, but I can't wrap my head around how ...
1
vote
1answer
154 views
What are current interest rates on senior/junior/mezzanine loans for e.g. real estate developers?
For a case study I have to work on for a university course, about a real-estate-development project, I need to simulate the financing with different proportions of equity (40%), senior loan (35%), ...
2
votes
1answer
124 views
Why for one year (and not two or three) government bonds (there is a spike for Switzerland & Denmark)?
On 10.10.2012, I have looked at the bond-rates and, both for Switzerland and Denmark, there is a discontinuity/spike at 1Y, as per below
Switzerland: ON= -0.09, 1W= -0.180, 1M= -0.230, 3M= -0.2, 6M= ...
6
votes
4answers
477 views
Why the interest rate for put-call parity is not constant?
Usimg the put-call parity
$C - P = S - K · e^{-rt}$
I tried to estimate the value of $e^{-rt}$, the present value of a zero-coupon bond that matures to 1 in time $t$:
$e^{-rt} = (P - C + S) / K$
...
5
votes
3answers
676 views
Why would a 6M LIBOR rate be significantly above 3M LIBOR, ED futures and swap rates?
Just was just looking at the various interest rates and noticed this:
...
6
votes
4answers
250 views
Government bonds with negative yield
In the recent time-series of bonds issued by (for example) Germany, Austria and France we see an unfamiliar phenomenon: negative yields. This is mainly the issue on the short end of the yield curve. ...
0
votes
1answer
43 views
Showing that no interest rate will equalize amounts accrued [closed]
Suppose that your grandmother is receiving Social Security at the start of next year and has to choose between two plans for how to receive her payments. Divide each year into $k$ payment periods ($k$ ...
2
votes
1answer
213 views
Calculate the “ten year zero rate” given two bonds with two prices
I have a little question and need some help with the notation. So, the question goes as follows:
A bond with a maturity of ten years that pays annual coupons of 8% has a price of \$90. A bond with ...
0
votes
0answers
48 views
Modelling the magnitude of negative interest rates as depending on the deposited volume
The discounting curves are generally inferred from zero coupon bonds, especially for short rates, where such zero coupon bonds exist. Given the recent governmental negative interest rate bonds, this ...
1
vote
0answers
50 views
Neglect the positive values in negative interest rates modelling?
The magnitude of the negative interested rate should vary correlated with the increase in fixed assets prices and with cross-currency basis spreads.
Could their volatility / correlation ...
0
votes
0answers
36 views
The observed negative interest rates should be modelled as the observed positive ones?
The presently observed negative interest rates for the recently emitted negative interest bonds by France, etc seem to increase in magnitude with the term. This might suggest that their modelling is ...
0
votes
0answers
43 views
Jumps in the evolution of observed negative interest rates related to changes in credit ratings?
If credit risk is to be considered completed integrated in the market prices (integrated credit and market risk), the change in the credit rate will trigger the change in the interest rate/market ...
0
votes
0answers
64 views
Split in two the observed negative interest rates (theoretically always positive/negative)?
An autoregressive model to get the future evolution a non-jumpy evolution of the interest rates seems a good option , but not taking into account the possible future variations in credit rate states ...
0
votes
0answers
44 views
Bibliography and historical data relevant to negative interest rates modelling
For a project, I am interested to model the impact of recently negative interest bonds on the portfolio.
From this point of view, the literature I have found is limited.
I am asking for some ...
0
votes
1answer
57 views
Separated software and physical cash flows modelling and pricing to be used with negative interest rates?
The physical cash presence in the final transactions is one of the issues in the presently observed negative interest rates bonds. Such a situation has historically been modelled within the "liquidity ...
6
votes
0answers
542 views
Modelling with negative interest rates
For a project, I am interested to model the impact of recently negative interest bonds on the portfolio. The literature on modelling negative interest rates is limited, and the only theory I could ...
2
votes
1answer
153 views
Question on OIS and fed funds rate
If i am considering the 0-5 year irs spread for the USD market, would it be more accurate to use the fed funds rate or the OIS rate? I believe the OIS rate is calculated based on the fed funds rate, ...
6
votes
1answer
335 views
Implied forward rates puzzle
Here's an interesting cocktail puzzle related to the term structure of interest rates.
One of the primary competing theories for explaining the term structure of rates is the Rational Exepctations ...
-4
votes
1answer
157 views
inflation > interest rate? [closed]
Currently, the federal reserve interest rate is 0-0.25%, and the inflation is 2-3%. Does this contradict the no-arbitrage principle? (The arbitrage being: borrow money at 0.25% and invest it in the ...
3
votes
2answers
158 views
Is it true that pricing an IR swap doesn't require any stochastic model but calculation of the PFE of an IR swap would?
Pricing an IR swap doesn't require any stochastic model but calculation of the PFE for an IR swap would require the Hull White Model or any other stochastic short rate or forward rate model.
Is ...
6
votes
3answers
1k views
What is a real world example of negative forward interest rate?
As the title says, I am looking for a real world example where a forward interest rate is negative.
Theoretically this is not a problem at all, if I look for a 3M forward interest rate that starts ...
4
votes
1answer
188 views
What's the best way to test/validate an interest rate lattice model
I have some implementations of interest rate lattice models. I would like to verify their performance. What would be the best approaches?
Currently I compare pricings of some interest rate dependent ...
3
votes
2answers
2k views
Why use swap-rates in a yield curve?
I have a question concerning interest yield curves. Many institutions use the Libor-swap rate curve as a yield curve. Let's be precise and say that we want the yield curve to be the curve that gives ...
13
votes
2answers
571 views
Why isn't the Nelson-Siegel model arbitrage-free?
Assume $X_t$ is a multivariate Ornstein-Uhlenbeck process, i.e.
$$dX_t=\sigma dB_t-AX_tdt$$
and the spot interest rate evolves by the following equation:
$$r_t=a+b\cdot X_t.$$
After solving for $X_t$ ...
3
votes
1answer
2k views
Deriving spot rates from treasury yield curve
I've been experimenting with bond pricing using easily available data (treasury auction prices and treasury yield curves on treasury direct).
At first I assumed that I could use the components yield ...
