The yield-curve tag has no wiki summary.
19
votes
5answers
2k views
Why is an inverted yield curve a problem?
Immediately preceding the worst of the financial crisis, my professors all pointed out to me that the yield curve had inverted -- short-term yields were more risky than 20-year or 30-year Treasury ...
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 $X_t$ ...
8
votes
1answer
282 views
Musiela parameterization
I have a question regarding the proof of the Musiela parametrization for the dynamics of the forward rate curve. If $T$ is the maturity, $\tau=T-t$ is the time to maturity, and $dF(t,T)$ defines the ...
7
votes
1answer
118 views
Bond curve extrapolation
What are the best methods to extrapolate bond yields from an existing curve that doesn't extend quite this far?
For example, how would one come about finding a theoretical bond yield for a 40 or 50 ...
6
votes
2answers
677 views
Is Duration really the slope of the Price-Yield curve?
When looking at the Price-vs-Yield graph for a fixed rate instrument, we are often told that the duration is the slope of that curve. But is that really right?
Duration is (change in price) divided ...
6
votes
1answer
228 views
How to build the short end of a zero coupon curve for non-core Eurozone countries?
I am in the process of building zero coupon curves for some countries in the Eurozone.
I have the following data sets:
Euribor and EONIA
Swap rates
Bond price and yields
The bond prices (and thus ...
5
votes
1answer
212 views
Where do swap rates and/or long-term forward rates come from?
I apologize if this is supposed to be obvious, but ... . Libor spot rates are quoted up to a year, beyond that one can use Eurodollar futures to continue to build the curve. Let's say up to 3 years. ...
5
votes
1answer
214 views
About Option Adjusted Spread, rate curves and bonds comparison
I have few questions about using OAS as a measure of risk:
does OAS allow for comparison between bonds with and without embedded options (e.g. a callable bond against a plain vanilla one against a ...
5
votes
1answer
311 views
What are some simple algorithms for hedging vanilla bonds?
My team will soon be implementing an auto hedger for our bond trading desk which will be integrated tightly with our risk application and I am interested in researching how this may work.
Any advice ...
4
votes
4answers
210 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 ...
4
votes
2answers
252 views
Which interest rate should I use for the discount rate in real-world pricing?
Suppose I want to compute the time value of money (present value, future value, etc). I need to put an interest rate into the calculation.
Which real world interest rate would best be used here, ...
4
votes
1answer
1k views
Bootstrapping spot rates from treasury yield curve
I'm attempting to construct a spot rate and forward rate curve from the 2011 daily treasury yield curve rates provided by the US Treasury. All US Treasury securities (1m, 3m, 6m, 1y, 2y, 3y, 5y, 7y, ...
3
votes
2answers
256 views
Using the termstrc package in R
I am attempting to use the function estim_nss from the termstrc package in R to find the spot curve from constant maturity rates published by the Fed. I am using this package because I will need to ...
3
votes
0answers
57 views
RQuantLib: any difference between FixedRateBond() and FixedRateBondPriceByYield() with flat term structure?
Please, consider the following functions from RQuantLib package:
FixedRateBond()
...
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 ...
2
votes
3answers
99 views
What do these maturity codes mean?
In fitting a curve I found that people are using the following tenors:
U1 Z1 H2 M2 U2 Z2 2Y
Could you please let me know what exact time periods they stand for? Is there a web page describing ...
2
votes
1answer
212 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 ...
2
votes
0answers
111 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 ...
-2
votes
1answer
122 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 ...
