# 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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### What equation will convert implied yield volatility to implied price volatility?

I am trying to figure out how to turn implied yield volatility of a short-term interest rate into implied price volatility. Is there an equation to do this? I have come across the equation for a ...
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### Portfolio Values based on reference interest rates

How do I approach the following question? A portfolio has 100 million invested in equities. It has also transacted an interest rate derivative issued by counterparty X, which the value is 0 if the ...
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### Ito's lemma for special case

Assume a HJM framework with the same Brownian motion driving the dynamics for every tenor. $$df(t,T) = \alpha(t, T)dt + \sigma(t,T) dw_t \,,$$ with $\alpha(t, T) = \sigma(t,T)\int_t^T \sigma(t,s)ds$....
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### Interest Rate Models cheat sheet - Need for advice

I'm trying to get through the litterature of interest rate models for some time now. As I don't have any experience working with them, I started looking for some kind of a cheat sheet that would ...
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### Black and Normal Model for Caplet using Python

I am able to Price Caplet using Black 76 model in Python. However, I am unable to price the same with Normal Model. Can anyone suggest what is missing ? I am valuing caplet that caps interest rate on ...
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### Duration. Floating rate note

I don't understand why the duration of a floating rate note equal to the time to the next coupon payment? Please, look at my calculations. Here: P - is price at moment 0.
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### Equivalent of recovery rate

I'm trying to understand the functioning of "recovery of face-value" approach. Let $V_t$ the fair-value, that is the price that the holder of a defaultable bond must pay for hedging of default of ...
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### daycount of the yield curve

Complete characterization of an interest rate requires a few elements: day count compounding frequency the rate itself start date and end date That said, I notice that day counts are never displayed ...
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### Computing option price with rates only

Hi I am learning about options and came across this example: The spot FX rate AUD/USD is 0.6868, the 6 month ATM implied volatility for AUD/USD is 7.7% p.a., for the 6 month USD deposit rate is 2.28% ...
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### Wave Method and Implied Duration

I am pricing an MBS under three different rate scenarios: a base case, +5bps and -5bps I compute partial durations on the base case using the wave method (P. Hagan: Calculating Delta Risks and Hedges ...
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### What are good TEXTBOOK on stochastic volatility and interest rate theory?

I wanted to learn stochastic volatility modelling and interest rate modelling. On this site, a answer recommended me the books "Stochastic Volatilty Modelling" by Lorenzo Bergmo and "Interest Rate ...
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### Interest Rate Assumption (Ornstein - Uhlenbeck Process)

Why can we assume that interest rate is stationary (identically distributed), Gaussian (has multivariate normal distribution), Markovian (the future is determined only by the present), and continous ...
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### Multi-factor vs Single-factor interest rate model for XVA / CCR

When calculating XVA or Counterparty Credit Risk (CCR), you can choose to simulate your interest rate with a Multi-factor interest rate model or a Single-factor interest rate model. What are the pros ...
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### what are the underlying transactions for SOFR?

Recently I am reading about SOFR (Secured Overnight Financing Rate), which is projected to replace LIBOR to be the reference for risk-free rate in the market. But I still don't understand or imagine ...
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### Discrete term structure models - generalized procedure to ensure positive probabilities across multiple measures

Question: Is there a generalized procedure for building a discrete (e.g. binomial) term structure model with risk-neutral branching probabilities that ensure positive probabilities under alternative ...
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### Why are KRDs calculated by shifting the par curve?

When we compute Key Rate Duration, why is the par curve the right curve to shift instead of the spot curve?
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### Hedging amortising interest rate swap with vanilla swaps

Is it possible to hedge an amortising interest rate swap (linearly decreasing notional) with a series of vanilla interest rate swaps? With the amortising swap originated today at par rate and the ...
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### How to calculate Spot Rate with interest rate [closed]

You are a foreign exchange trader specialized in the US dollar Swiss franc market (USD/CHF). One morning, you notice that the one-year dollar interest rate is 4%, while the one-year interest rate on ...