It is the story of interest at the moment. Rate hike expectations from central banks around the globe. Various sale side research parties publish often market implied rates hike. The magnitude and the probability.
I know the basic model via futures where you condition on different events, e.g. a hike or no hike and simply speaking comparing futures before and after a central bank meeting. However, depending on the futures these estimates are not very precise due to iliquidity (e.g. fed fund futures). So research often uses swaps to come with these market implied rate hikes / probability. I was wondering
- Which swaps are used for this purpose?
- What is the exact methodology behind it. Are there any references?
- For the probability one needs a model. What are some good references how this is usually done?
Curious to hear any insight on that topic.