# 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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### Forward Rate of a Forward Rate. (calculate 1y1y rate in 1m time)

I'm sure this is straightforward and I am just missing something. I am familiar with standard fwd rate calculations. i.e assuming a 2y swap rate is x and a 1y swap rate is y, the 1y1y rate would be ...
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### How to build a HW1F tree for SOFR?

I have previously built a HW1F trinomial tree (following the HW paper), and I manage to calibrate sigma(t) to swaptions and to price some derivatives. I discretise the tree quarterly (LIBOR3M). ...
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Assume that an investor holds a bond and enters into an asset swap with a bank in which the investor pays the fixed coupon and receives Libor + spread and the following data: 10y bond price 103, bond ...
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### Short bond convexity

Assuming you need to pick a bond to short. Is it better a bond with large or small convexity (all other things being equal)?
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### Non deliverable interest rate swaps (NIRS)

Can you pls explain how the payoff of an NIRS is calculated and what collateral is usually posted (USD or local ccy)? I am especially interested on how the FX risk is incorporated in the pay off and ...
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### Modeling compounded RFRs with Vasicek

I’m wondering if simple interest rates models, like Vasicek, could be successfully used for modeling compounded setting-in-arrears rates (compounded SOFR for example)? As far as I see I can do that ...
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### Modified duration with zero-coupon bond yields

I want to calculate the modified duration for a series of non-fixed cashflows (monthly). I have a series of monthly discount factors. To do this I have been calculating the Macauley duration as ...
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### Calculating swap rolldown using the RatesLib Python Library

The code I am using is below, pulling in swap curves from BBG and then using RatesLib to price the swaps. ...
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### Periodic investments with compound interest: where's the mistake?

Consider two investment strategies: Every year, I have a quantity $I_a$ to invest. There is a financial object that gives an anual return of $r$, that is, after a year it transforms $I_a \mapsto rI_a$....
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### Constructing a yield curve with unknown discount factors

There are some questions and answers on this site about yield-curve construction, but none of them address the case where in an EM market setting, one might only have annual observability of (say) IRS ...
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### Best Book - Understanding Investment Bank Operations

Could you please recommend Books to read for understanding Investment bank operations in Information Technology ( IT ) Point of view? like develop/support all system involved in FO/MO/BO systems in ...
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### How to calculate Term Deposit Redemption Rate (TDDR)?

How would you estimate Term Deposit Redemption Rate (TDRR) in the context of regulatory banking (IRRBB and ALM)? Supose I have a database with net balance of term deposits (1), early redemptions (2) ...
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### Interest rate models history

I am familiar with some interest rate models, such as the Vasicek, CIR. I also have an understanding of the basic formalization of other models such as Ho-Lee, Hull-White, HJM, Libor market model (LMM)...
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### Simulating the Term Structure of Interest Rates in the CIR model

I have successfully implemented the CIR model of the short rate, and now want to use these short rate paths to construct distributions of various tenors - 2y, 3y, 5y, 10y for example - across the ...
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### Shape of Yield curve of ZCB under no-arbitrage

Sorry if the question is somewhat elementary, but I have thought about it for a while and I cannot figure out where my mistake is. Suppose we are in are in an arbitrage-free market in which risk-free ...
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### Interpolation by central bank cometee meeting dates

I want to have an interpolation, to the yield curve, In the term up to a year, the forward daily curves will be the same between central bank cometee meeting dates (to be precice, the implemantation ...
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### Is there a "standard" "textbook" model for making re-financing decisions?

You have a loan with an x% interest rate. Rates fall to y%. Should you pay a fee to refinance? Presumably not if the NPV of the saved interest is less than the fee. However, if you always refinance ...
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### GSABR model vs SABR model

I've read about the SABR model for pricing options, however I am told there is a variant called GSABR. Does anyone know how this model differs from the original SABR model?. Any papers would be really ...
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### Book on IR products in 2024?

After the Libor->RFR transition, I am a bit worried about reading books like Andersen&Piterbarg or Mercurio/Brigo. They're still highly useful of course since its mostly models being studied ...
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### Decomposition of Step-up swaps

is there a general procedure to decompose a fixed-floating interest rate swap, where the fixed rate changes period-to-period, into a basket of co-initial swaps, each with a different fixed rate? For ...
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### Repo Partial termination cashflows

Let's take the example where I buy a Repo with a notional of 10000 EUR and I agree with my counterparty to partially terminate the deal, decreasing the notional to 8000 EUR instead of 10000 EUR. The ...
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### What is the difference between Brigo and Mercurio's book and Andersen and Piterbarg's book?

I'm referring to Interest Rate Models by Brigo and Mercurio and Interest Rate Modelling Volume 1-3 by Andersen and Piterbarg. Both are around 1000 pages, and are frequently recommended as "bibles&...
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### "Problems and Solutions in Mathematical Finance, Volume 3: Interest Rates and Inflation Indexed Derivatives" by Eric Chin

I've heard about the book "Problems and Solutions in Mathematical Finance, Volume 3: Interest Rates and Inflation Indexed Derivatives" by Eric Chin, Dian Nel, and Sverrir Olafsson. Does ...
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### What are state-of-the-art methods for forecasting of rates and volatilities?

Usually forecasting is based on a model for the evolution of a value $x(t)$ based on some parameters ${\beta}$ that can then be estimated using various statistical means. For yield curves and ...
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### CMS FRA explanation

do you know how works a CMS FRA? CMS FRA confirmation is below. What does 2.344% represent ? why do we have Euribor in the confirmation? Example: ...
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### Test Formula for Cross-Currency Basis by Using S, F and Rates. What Rates to Use?

I am trying to recreate the charts on slide 6 on the below. Basically "test" the formula for the cross-currency basis for EURUSD. I am using as target EUXOQQ1 BGN Crncy, which is the ESTRON ...
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### Are these two hedging strategies equivalent?

I am looking at two strategies for hedging interest rate risk, and I need some help to show whether they are equivalent or not. The aim of the hedging programme is to hegde the 10yr risk free rate in ...
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### How do we determine 0M spot rate for 3M libor?

Say I have a 3M libor curve constructed from a bunch of 3M FRAs, so I have a 3M spot rate, a 6M spot rate, a 9M spot rate, etc. For points in-between, say 4M, I would have to interpolate between the ...
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### Interest rate swaps - if i expect rates to be cut later than market expectations, what swap can I put on?

If I think market expectations are too dovish and I expect rates to stay high for longer i.e. rate cuts by X central bank to happen in September for example (as opposed to whats priced in, e.g. May), ...