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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155 views

Were can I find Historical Interest Rate Data?

Where can I find American historical Savings Account interest (Bank) rates? If you can, please attach corresponding links.
7
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1answer
409 views

Are there any other standard rates term structure decomposition than PCA?

PCA is sometimes used to estimate components in the rates term structure. Are there any other standard method discussed in the literature or used in practice, what are their advantages and ...
2
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1answer
93 views

Discounting based on instrument type

Suppose we have an asset $A$, and we have modelled the cashflows for this asset to be $\{C_{1},\ldots C_{k}\}$ which occur at time $\{T_{1},\ldots T_{k}\}$. Now the present value of the asset can be ...
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5answers
18k 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
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0answers
230 views

Bond (yield curve) dynamics in the Forward-LIBOR-market-model

The standard Libor-Forward-Market-Models provides a way of modelling the evolution of forward rates in time. However the model does not seem to be well suited for the modelling of zero-bonds. But ...
4
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0answers
50 views

What type of interpolation should be used in key rate perturbation models?

When perturbing a key rate in order to assess sensitivity of portfolio value, what sort of interpolation is standard? A book I am looking at says linear, but this seems pretty unrealistic to me--and ...
1
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1answer
85 views

What is a good index to track short term interest rates?

This is an FX question. I want to track short term (overnight or next best thing) rates for major/em ccys. What's the best way of doing this? Is there an index I can follow? Preferably something ...
3
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1answer
264 views

3 Factor HJM model, do these factors have an economic meaning?

In the HJM model, in case we have 3 factors, do these factors have an economic meaning at all ?
5
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1answer
227 views

Background required for the book by Brigo and Mercurio

My aim is to be able to read and understand almost all of the book by Brigo and Mercurio including HJM, LMM and the Local Vol models. So that I am able to implement these models on my own. My ...
3
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2answers
153 views

Effect of interest rate on options prices

This might be another basic derivatives question. When interest rate rises, stock prices generally fall. Assuming an option's underlying is a stock, this should lower the option's price as well. ...
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0answers
154 views

What's the link between EURIBOR3M futures volatility and rates volatility?

If I am not wrong, EURIBOR3M futures with maturity $T$, whose price is $F_{T}$, are quoted like contracts which express the underlying forward rates, $r_{T}$, as $$r_{T}=\frac{100-F_{T}}{100}$$ Now ...
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0answers
65 views

How do bond futures affect effective rate when used to hedge a bond's duration?

I'm trying to wrap my head around what happens to the net interest received when an invester goes short a bond future to fully hedge the duration of his long position in an actual bond. Does it ...
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1answer
264 views

Derivation of the Nelson-Siegel model and proof of arbitrage

1. I am looking for a derivation of the Nelson-Siegel model $y(m)=a+b\left( \frac{1-e^{-\lambda m}}{\lambda m}\right)+c\left( \frac{1-e^{-\lambda m}}{\lambda m} -e^{-\lambda m} \right)$ It is ...
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2answers
93 views

What is the most amount of money the consumer would be willing to pay to play take this gamble?

Suppose a consumer has log-utility over wealth, defined by $u(W) = \ln(W)$. Suppose this consumer has $100$, and is considering taking a gamble in which the consumer flips a coin, and gets $20$ she ...
2
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0answers
198 views

Reasoning for Bloomberg's short rate volatilty calculation

Bloomberg, in its documentation, explains that it calculates the short rate volatility for its Hull White implementation by multiplying the e.g. 10y IRS rate (divided by 100) by the 10y cap vol. Why? ...
2
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0answers
110 views

A doubt about Evans and Jovanovic (1989) economic model for entrepreneurs with credit constraints

[I already posted this question on the math forum of stackexchange and I was advised that I should post this question here] In Evans and Jovanovic (1989) you will find a model for entrepreneurs with ...
2
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0answers
124 views

How to reproject rates risk on a subset of tenors

Is there a standard method (statistical or model based) to reproject rates risk obtained on a full set of tenors onto a smaller subset of tenors ? Let's imagine that I got a delta in the following ...
2
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1answer
629 views

EuroDollar vs FRA

I am not quite clear about this. When people mention Eurodollar are they mean Eurodollar Futures? One of the difference between Eurodollar and Forward Rate Agreement(FRA) is basically difference ...
0
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1answer
389 views

Non-intuitive correlation between S&P sector indexes and economic indicators

I am trying to understand how changes in economic indicators like Unemployment Rate, Inflation Rate, and Consumer Sentiment affect the portfolio values. For that I want to measure the correlation ...
3
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1answer
701 views
1
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1answer
5k views

Implied interest rate from FX swap

This is not homework. I am trying to calculate the implied interest rate of one currency (C2) using an FX swap and the interest rate of another currency (C1 - base). I have the following: Spot: ...
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0answers
410 views

How to think about dollar volume in Eurodollar futures?

This is a very basic question: Computing the notional volume for futures contracts usually consists of something like: $V_F = N * P * M * FX$ Where $V_F$ is the dollar volume of the futures ...
2
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1answer
140 views

Fixed Income free research available online

As from the title, I would like to know where it is possible to find free research focused on fixed income markets' themes and topics, such as interest rates, credit risk related fundamentals, new ...
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468 views

European Swaptions: does implied volatility of swap rates decreases both with start and tenor?

Does implied volatility of swap rates decreases both with start and tenor? Given a Swaption price and a discount curve I calculate the swap_rate from the curve, then I define implied volatility as ...
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2answers
1k views

Is Vasicek risk neutral?

I am a bit new to this, and am trying to understand the concepts of the risk neutrality in interest-rate models. What I can't seem to understand is why the Vasicek model is risk-neutral? Following ...
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0answers
102 views

Modelling interest rate: AR(2) modelling

I have a time series of spread that follows an $AR(2)$ (Autoregressive model of Order 2). I need an interest rate model that represents that dynamics. What model should I use?
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2k views

Are DV01 (or PV01) and IR01 one and the same?

IR01 measures the sensitivity of a portfolio or derivative to a parallel shift in the yield curve. Sometimes this is DV01 Dollar value (or PV01 present value). Is it always?
2
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1answer
179 views

interest rate in cost of carry

What interest rates are used in practice in a stock index / futures arbitrage? I've seen cases, when the assumed rate is 3 months LIBOR, but does it mean, that everyone who does the arbitrage can ...
2
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1answer
516 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 ...
2
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1answer
374 views

Why is the mean time-dependent in the Hull-White interest rate model?

In the Vasicek interest-rate model, the interest rate reverts to a constant mean. This makes sense to me. In my conception, the mean ought to be time-invariant, since interest rates don't follow an ...
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1answer
1k views

Normal vs Lognormal Short Rate models

Are there any general arguments to decide whether it is better to use a model with a normal or a lognormal distribution of the short rate? E.g. Hull-White with a normal and Black-Karasinski with a ...
4
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1answer
1k views

On short-rate-models: Black-Karasinski (with constant parameters) compared to Vasicek

When modelling the term structure of interest rates, one widespread possibility is using the Black-Karasinski model, which is given by the following stochastic process ...
0
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1answer
515 views

Zero Curve Calculation for AUD, CAD (post LIBOR scandal)

In the end of May 2013 British Bankers Association (BBA) stopped publishing LIBOR rates for Australian and Canadian dollars in a light of recent scandals. LIBOR rates were essential for creating zero ...
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5answers
11k 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 ...
2
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1answer
108 views

if market is always assumed right, what happened when LIBOR was manupulated?

Recently Monetary Authority of Singapore (MAS) raps banks in rate-rigging. This is nothing new, LIBOR was also manupulated before, by some "major" banks. however, before the censorship, did any ...
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1answer
393 views

why banks shall keep short term gap position low?

I'm reading "Insights for Bank Directors" (http://www.stlouisfed.org/col/director/reference_view.htm), a good introduction to commercial banks, based on a virtual bank "Insight". It talks about Gap ...
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1answer
348 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 ...
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2answers
376 views

Matlab; How to specify Coupon frequency for Interest Rate Swap

I'm trying to price an interest rate swap and would like to change the default coupon payment frequency from 1 a year to 2 or 4 a year. I'm using ...
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1answer
792 views

LIBOR Rates available in CSV, XML etc

Is there a website that offers current LIBOR rates for all tenors for free in machine readable formats?
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94 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 ...
2
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1answer
426 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
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1answer
105 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
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2answers
293 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 ...
4
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373 views
1
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1answer
62 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 ...
2
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2answers
1k 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 ...
2
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3answers
4k 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
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3answers
5k 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
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4answers
631 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, ...
3
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1answer
260 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).