# Tagged Questions

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### Central bank interest rates: are they quoted annualized?

After a little research on interest rates of different countries I figured out that they are more complicated than I thought and the meaning of them varies country by country. For example, the U.S. ...
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### Intuition behind interest rate models

I am modelling the 3M yield of US Treasuries using an ARMA/ GARCH approach. Most interest rate models (e.g. Vasicek) describe the process as follows: $r_{t}-r_{t-1} = some ARMA+ \epsilon_t$ ...
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### CIR model and calibration

I am new to quantitative finance. We know that in the CIR model the short rate can't go negative. My question then concerns calibration of CIR to a ZCB yield curve. Is it (and why?) possible to ...
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### What if: Negative interest on an overdrawn bank account?

Theoretical question: Consider if a bank account had a -12% yearly interest rate, and an account was currently overdrawn to a balance of -$100. What would the bank do to the -$100 balance after one ...
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### Relationship between interest rate and corporate bond yield?

I have been reading articles on liability driven investing, a technique used to increase the correlation b/w assets and liabilities of a pension plan. It appears that they use AA rated corporate bond ...
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### How often do banks update forward points?

My understanding is that forward rates are calculated by comparing interbank interest rates of the 2 currencies for a currency pair, with the points being the difference between spot and the forward ...
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### I need a low volatility asset that gives an interest/dividen [closed]

I have some cash that needs to sit on an account for some time (less then a year, where I will withdraw an amount every month). I need them in a fixed price/low volatility asset that gives an interest ...
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### Interest Rate Risk - The Greeks

IR Delta and Gamma. Can someone please explain if my understanding is accurate as relates to a 2yr interest rate swap? You are considered to be long Delta in an interest rate swap if you are ...
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### Compound Interest Calculation (Years + Months)

My question is with regards to the calculation of "Compound Interest". I have the formula below where I would get an answer to the total value of the investment over a period of "years". $A$ = ...
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### How to measure interest rate risk of an equity?

What is the best method to measure interest rate risk of an equity? For example: I am looking to determine the change in price based on a change in yield. I currently have a position in XLU and ...
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### Should portfolio be optimized by marking to the future than marking to market (excluding currencies)?

Observing the negative interest bonds in Switzerland, Denmark, GErmany the value of higher presently (credit-free) outgoing cash flows seems less important than the value of lower future (credit-free) ...
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### Compound and continuous interest in the context of debt

I'm trying to figure out the concepts "compound and continuous interest". This article explains the material very well in the context of a savings account. However, I find it difficult to transfer my ...
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### How inplement monte carlo simulation in bdt model ? (interest rate)

I want to implement monte carlo method in Black–Derman–Toy model to preview short interest rates. $$d\ln r_t=(\theta_t+\frac{\sigma'_t}{\sigma_t}\ln r_t)dt+\sigma_tdW_t$$ Someone can explain what ...
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### Modelling nominal interest rates

What is the best model for nominal interest rates? ARMA, VAR, VEC, FAVAR, etc? I am a R user, so please advise me the most convenient R package to use as well. I intend to model US nominal interest ...
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### Convert 90-Day Tbill to risk free rate on continuous basis

I am trying to use the BS formula to compute the value of a call option. To do that I need the risk free rate on a continuous basis. As far as I know, people typically use the 90 day TBill as a proxy ...
I'm working through some actuarial practice and am lost as to what's going on with the differentiation here (it's been a while since I've had calc): Derive an expression for $\delta_t$ if ...