Questions tagged [interest-rates]

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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Rates:How can you tell what is priced in at the next BOE meeting [duplicate]

Good Afternoon, What do I need to look at instrument or curve to see what the market has priced in for Bank of England base rates ahead of a future meeting date? Thanks
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Convexity adjustment doubt

So this the question and the answer to the first one states that only the 5 year swap rate will be adjusted for convexity and the answer to the second one states that neither of the rates will be ...
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how to calculate the implied interest rates using STIRs futures?

I saw a post of trader sharing his expectations of implied interest rates on different meetings dates of different Central banks using STIRs ScreenShot and am trying to figure out how he did it ? my ...
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How should we interpret r_c in continuously compounded interest? [closed]

I'm just curious there is any useful "meaning" or interpretation we can assign directly to $r_c$. Of course one can directly calculate the non-continuously compounded interest from $r_c$, ...
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Why is carry divided by DV01 to scale it?

If I understand correctly, 6M carry in a fixed-floating interest rate swap should be the difference between the fixed and floating leg. When I read this on Page 2: https://corporate.nordea.com/api/...
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How to derive the HJM drift condition?

I'm trying to derive the Heath Jarrow Morton drift condition (from Björk, page 298) and this equation is the part that I'm not able to derive: $$ A(t,T) + \frac{1}{2} ||S(t,T)||^2 = \sum_{i=0}^d S_i(t,...
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From Implied volatility to shifted Black volatility

I don't know who to go from normal to shifted black volatility before calibrating SABR with negative interest rates. I see: "As we know that implied volatilities have a one-to-one relationship ...
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Interest rate swap Profit and loss attribution

I am wondering how the IRS daily PnL will normally be attributed from trader's/market risk perspective. Will it be broken down into three parts daily carry (Daily interest accrual), daily roll-down (...
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Vasicek Model: smile dynamics

I have come across the statement that the Vasicek model cannot be used to price skew / smile sensitive products: i.e. it cannot be calibrated to replicate a skew or smile. Why is that? My guess is ...
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Estimating the relationship between short-term intretes rates and 10Y bond yields

On the 16th of March 2020, the Polish Central Bank announced its first-ever round of Quantitative Easing. I am conducting an event study on how this announcement impacted the term structure. The main ...
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Term premium with daily vs monthly time series

I have estimated the term premium for the Polish Government Bonds (POLGBs) using the methods described by Adrian et al. (2013) (often referred to as ACM). The underlying yields are interpolated from ...
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How to combine DV01s from multiples maturities into fixed ones?

Suppose I have multiples maturities on my book of IRS trades , each one maturing in 15, 35 , 58, 65, 70, 74, 95 (...) days. How do I decompose (or combine) the DV01 for each flow/maturity into fixed ...
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Approximate dollar MTM of interest rate swaps

I'm definitely a fixed income tourist but I'm wondering if there's an easy way to back of the envelope approximate dollar PnL of an interest rate swap For example, if I enter a $1m fixed 5y USD swap ...
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When using exponents the BA II Plus is returning incorrect answers, what am I doing wrong?

I am using the BA II Plus Texas Instruments calculator. When I want to calculate an EAR for example, my calculation would be as follows: (1 + r/m )^m -1 = EAR So in my calculator, using 5 decimal ...
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What calculation professional use to know how much of interest rates the market is pricing [duplicate]

Whenever I read news articles on specific topic (interest rates ) especially before the fed meeting I see some titles stating that the market is betting/pricing for example 0.5% or 1% rate move ,and I ...
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Trying to check this 1Y1Y forward treasuries calculation

here is a screenshot of the FWCM screen on Bloomberg: https://imgur.com/a/cO5kIOz I'm trying to check that I understand this by calculating the 1Y1Y which according to this matrix is 3.6877%. So the ...
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How to build an FX curve?

Apologies for the rather broad question! Essentially, I wanted to ask how to build an FX forward curve from scratch. I have some basic understanding of interest rates and discounting but I am lacking ...
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Deriving the variance of G2++ Model

I'm studying G2++ Model in Brigo(2007)'s book. The model constructed as follows, $$ r(t) = x(t) + y(t) + φ(t), \quad r(0) = r_0\\ $$ with the dynamics of $dx(t)$ and $dy(t)$ described by: \begin{align}...
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MBS Index replication month-end flows

Several investors track indices to gain exposure to specific asset classes. And these indices may be re-balanced on a monthly basis, based on market-cap etc which generates month-end flows from ...
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Why did Ginnie Mae MBS Net issuance decrease significantly in 2020-2021?

Net Issuance of Agency MBS can be thought of as driven by Existing Home Sales, New Home Sales, Cash out Refis, Amortization and Non-Agency MBS runoff. Based on this definition of net issuance, is ...
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FX Swap PnL and NPV

Suppose I have an existing FX Swap, suppose the spot leg is already settled, so only forward leg is left. Question: What will be the P&L for this instrument - only forward leg NPV or spot leg is ...
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MBS Dollar roll mechanics

Had a few questions on MBS Dollar rolls: How are dollar rolls affected by Interest rate Volatility? Does the OAS of underlying pools matter to dollar rolls, and if so, how do they affect it? Does the ...
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Interest Rate Volatility for Binomial Trees

Does anybody know where I can get the data or calculate interest rate volatility for modelling callable and putable bonds in binomial trees. I have swap curves data. Does any sources like Bloomberg ...
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Dynamics of FX rate

I've see a couple of places where a FX rate, denoted $X$, such as EURUSD (quoted as "the number of USD needed to buy 1 EUR") is modeled with a diffusion process / Geometric Brownian Motion ...
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Determine if stocks are hurt by rates or recession fear

Looking at a portfolio of growth stocks which traded at high multiples until end of last year. Stocks have been underperforming (no surprise there) but I'm trying to find ways to determine, ...
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MM Proposition and the cost of debt

I was studying Miller-Modigliani theorem and one of the stated assumptions was that there will be no bankruptcy cost to the firms. Does the assumption of "no bankruptcy cost" assume that in ...
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Interest rate risk of a bond as a function of the coupon

This SEC document claims that increasing the ocupon on a bond decreases the interest rate risk (bottom of page 3): And the Finra SIE exam states the same also. I cannot understand the logic behind ...
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falling flatforward curve in quantlib

I am trying to create a floating rate bond where I need to create a flatforward curve, but the curve seems falling over the time, or is there any way to keep the rate constant. ...
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Difference HJM Framework versus Short rate model

Recently I study some interest rate models. When I moved on to forward rate models, I see this documents https://en.wikipedia.org/wiki/Heath-Jarrow-Morton-_framework It said "HJM-type models ...
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Trying to learn to bootstrap with the Treasury Curve and can't seem to get a result that makes sense

I'm trying to learn to bootstrap and am taking some bonds from the Treasury curve: https://docs.google.com/spreadsheets/d/1vA7s4ZfFzGfTji_d9cLUid5rqyaugRrI0etCW_3Jb6w/edit?usp=sharing For some reason ...
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Determine forward rates for EUR/USD

I can't wrap my head around how to determine the interest rates to calculate the forward rates of any currency. At this point, I don't even know if this data is actually available to do the ...
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How do I set the fixed interest rate to offer in a swap?

Hypothetically, I want to offer a fixed interest rate swap on a asset that currently has a variable rate. This variable rate is somewhat volatile. How would I derive the fixed rate I should offer?
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Jarrow and Turnbull (1997) Discrete time forward rate confusion

I'm reading Jarrow and Turnbull (1997). They defined $p(t,T)$ as the time $t$ price of a default free zero coupon bond paying a sure dollar at time $T$ where $0\le t \le T$ (in year). They also ...
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Uncovered interest rate parity

I know that empirically the uncovered interest rate parity fails. But let's set that aside for a moment. The uncovered interest rate parity says: $$(1+r_{USD}) E_{EUR,USD} = (1+r_{EUR}) $$ where $r_{...
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Calculating Risk Free Interest Rates for VIX formula

This question pertains to a whitepaper published by the CBOE that explains how the VIX index is calculated. Near the bottom of page 5 of the whitepaper, it explains that two risk-free interest rates ...
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Term SOFR rate formula

The following website gives the specifications of the CME Term SOFR reference rates: CME Term SOFR. Point 1 in the link above specifies that the tenors that are currently supported are 1m, 3m, 6m, and ...
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Filling in between data in finance

I'm trying to create a model on how different factors influence a particular asset. For some of these factors, like inflation, for example, I have monthly data, while for others, like exchange rates, ...
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Put call parity with real time tick data

I am working with some real time options tick data (mainly futures options and index options), and in many cases the quotes are single sided (as seen on bloomberg terminal). I will denote a quote as ...
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Market price of risk ($\lambda$) - Brigo and Mercurio

In page 52 of Interest Rate Models by Brigo and Mercurio the following is stated: Precisely, let us assume that the instantaneous spot rate evolves under the real-world measure $Q_0$ according to $dr(...
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What is the Performance Total Return Swap (TRS)? How about Performance Fixed TRS and Performance Float TRS?

I just know these products recently: Performance Total Return Swap (TRS), Performance Fixed TRS and Performance Float TRS. But cannot find a detailed explanation of the product, all I can find is an ...
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Zero Coupon Bond - Price and Yield when interest rate is a diffusion process and 0 "price of market risk"

Given that the price of market risk (or market price of interest rate risk) is $\lambda(r_t, t)=0$ and that we have the following dynamics of the interest rate (under the physical measure $P$. $$dr_t =...
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Is the G2++ model apt to use when one needs estimates of longer term refinance rates for mortgages and can the model be created with Monte Carlo?

I am currently in the process of developing an interest rate model that would be used to price mortgage-backed securities and develop an OAS estimate. Referring to Brigo and Mercurio (2006) I'm ...
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Explain daily P&L by risk factor for a portfolio of bonds and FX forwards

I was once an intern for a small bank with a portfolio mainly composed of gov. bonds, FX Forwards and time deposits. We used to report the daily P&L along with a P&L atributtion to each of the ...
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Difference between OIS and SOFR?

Basic question: I am a bit curious what are the differences between Fed Fund Rate, OIS and SOFR? All three, as I understand are based on overnight collateralized transactions? (Please correct if I am ...
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Caplet stripping in the bwd-looking RFR world with/without maturity adjustment

Since the beginning of this year, LIBOR rates have ceased in some markets like GBP, CHF, and JPY and rates pricing has moved into the RFR space, using compounded overnight rates as the underlying for ...
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Global Country Index for Insurance

I am trying to create a global country index for insurance. So this would be insurance by country. Anybody who is an expert in econometrics can give me some guidance on how to do this? How would I go ...
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2 votes
1 answer
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Analytical evaluation of the following caplet-type product under lognormal assumptions

Let $n \geq 2$, and consider a tenor discretization: $0 = T_{0} < T_{1} < ... < T_{n}$ and associated forward rates evaluated at time $t$, as $L_{i}(t):=L(T_{i},T_{i+1};t)$ for any $i = 0,...,...
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Number of Fed Rate hikes prices in

Could someone please explain to me how the calculation of the market expected FED rate hikes is done? Thank you.
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Zero curve discount factors/yields to a deposit rate

Here is the example zero curve. I need to get the deposit interest rate based on that. Is it safe to say that the interest rate equals the yield? If not why? What is the best approach? Thanks! Yield ...
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Hedging rates exposure in an FX options book

Fx options have exposure to the interest rates in the domestic and foreign currency. This risk can be hedged using currency forwards. In an ideal world, I suppose the best way would be to hold ...
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