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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Where can I find implied rates for central bank decisions?

Sometimes I'll see sources online say things like markets are pricing in a certain amount of bps rate cuts/hikes by the Fed or ECB (or some other central bank) for a certain monetary policy meeting ...
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Validate spread of simulated rates under the LMM

Looking for a way to validate the spread of simulated forward rates from the LMM model. Test Log-Normality for LIBOR forward rates under the Libor Market Model this post suggests using the simulated ...
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Trying to calculate FX SWAPS CARRY TRADE

Is this accurate ? I got it from the lehman brothers manual . EXAMPLE OF A POSITIVE CARRY TRADE • USD/JPY Spot/Next Points: -0.45 3-Year Points: -1040 or (-0.95 per day) Sell/Buy $10 USD /JPY three ...
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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 ...
Thomas Redding's user avatar
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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), ...
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Par Yield vs Spot Rate Term Structure

Using bootstrapping, i can derive spot rate curve from Treasury par yield curve. I added a couple extra maturities to the par curve, 60 year at +10bps to 30 year, then hold flat for the next 50 year. ...
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Calibrating SABR -- Can I calibrate the forward like any other parameter?

Essentially the title to the above. I am using SABR to price caps and floors (as well as options on SOFR futures). I currently have two calibration techniques, the first calibrates based on rho and nu ...
Zac Likes Vol's user avatar
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Bootstrapping yield curve with forward rates using QuantLib

I'm attempting to calculate a GBP yield curve using a USD OIS rate curve and the FX Forward rates using Quantlib. I am trying to replicate the output of a different library, and am close but can't ...
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Bootstrapping annual and semi annual bond [duplicate]

https://www.wallstreetmojo.com/bootstrapping-yield-curve/ a) This is the standard method for bootstrapping: From the 0.5-year maturity the spot rate or the discount rate is 3% and let us assume the ...
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Determining fair interest rate for an unsecured loan with a non-refund clause

A startup company is doing a share transfer between a new co-founder and existing co-founders. The new co-founder will purchase the shares from the existing co-founders through a loan agreement ...
Mikael Törnwall's user avatar
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Bootstrapping adjustment for coupon

I struggling to get why in bootstrapping I need to divide the YTM by 2 (for semiannual coupons) and not adjust the power for the semiannual period. Please see below example. Consider two bonds with a ...
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Convexity adjustment future/fra in practice

The topic of Future/FRA adjustment has already been addressed on a theoretical point view, roughly we need a rate model to calculate the covariance between the money market account of the discount ...
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Using HW1F Trinomial Tree for backwards-looking RFR

I have built a hull-white trinomial tree following this famous paper. Now this was built in the LIBOR forward-looking space. I wonder if the same can be used for a backwards-looking rate (such as USD ...
StudentK's user avatar
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How does the interest rate affect the implied volatility of options, especially ITM?

What would be a good reference to understand how the interest rate (r) or dividend yield (q), and I guess the differential between the two, affect the implied volatility of the options? If I look at a ...
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Euribor 3M simulation

I am required to simulate the trajectory of the Euribor3M rate as it is crucial for determining the future cash flows of my derivative instrument. I've received guidance to employ the Hull-White model....
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Mathematical meaning of an inverted yield curve

I am currently working on rates model. I would like to understand, mathematically, what does it mean to have an inverted yield curve? And I am asking myself for a certain model, how can I generate an ...
StochasticMan's user avatar
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Multiple factor Hull-While and yield curve deformation

I am currently studying rate models and I understand that the One-Factor model has some incompleteness: The yield-curve can only be shifted. But I don’t understand what parameter controls this shift ( ...
Adel Chakir's user avatar
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Measure of the behavior of Swaption surface

I'm looking to find a different measure than average shift move to explain the behavior of the IR VOL products say Swaption. I know it's a very open question not only touching upon IR VOL scope. Let ...
Michael W's user avatar
3 votes
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Model-free convexity adjustment

I have the settlement prices of 3-month SOFR IMM futures and I'm trying to compute the forward curve to replicate FactSet's results, but I have trouble understanding how they do the convexity ...
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Recent developments in interest rate modelling

Brigo and Mercurio published the 2nd edition of their (classic? definitive?) book on interest rate models in 2006. Have there been any major theoretical developments since then? Has anyone published a ...
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Pricing with log-normal interes rate

The annual rate of return in year $t$, denoted as $1+i_t$, where $i_0$ represents the interest rate from $t=0$ to $t=1$, has a log-normal distribution with an expected value $108\%$ and a standard ...
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Potential Future Exposure for vanilla swap

I need to calculate the PFE for vanilla swap. I wonder if it makes sense to simulate the MC scenarios with a 1-factor Hull white model. In my opinion, this model only allows parallel curve ...
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Risk free rate for Black and Scholes model: Incorporating inflation?

I am new to quantitative finance and I am trying to create a model for option pricing. Naturally the Black and Scholes equation is front and center for this sort of thing, but that raises the question ...
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Why does the risk-free rate implied by put-call parity vary with strike prices?

Suppose I do the following: buy one lot of some underlying stock currently trading at price $S$, write a call with strike price $K$, earning some premium $C$, and buy a put with the same strike $K$, ...
Jérémie Koenig's user avatar
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1 answer
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What book/resources would you recommend for beginners in IRD? [duplicate]

I recently graduated with a MS degree in Quantitative Finance and will presumably have some work to do with Interest Rate Derivatives (IRD) in the future. Since my experience lies more in the equity ...
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Interest rate derivatives market data - download [closed]

EDIT; I looking for sources where from I could get interest rate derivatives market data? (caps,floors,swaptions, etc, is there data available for exotics ones or are they purely OTC?) I would grade ...
Dar12342's user avatar
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Separability of Stochastic Volatility Model

After having read the article of Trolle & Schwartz regarding their general stochastic volatility term structure model (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=966364), it is not clear ...
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Any other ways to hedge a bond portfolio against interest rate risk? [closed]

I'm currently taking a (gentle) intro to derivatives class. One of the exercises asked me to discuss duration as a risk measure and to provide alternative methods of hedging a bond portfolio against ...
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Approximating implied price vol from implied yield vol?

I am wondering if there are any approximations that exist to convert yield vol to price vol? I am dealing options on SOFR futures, which can be quoted in yield and price (i.e. 3% put and $97 call are ...
Zac Likes Vol's user avatar
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Barrier Reverse Convertible on interest rate

I'm trying to find the price of an barrier reverse convertible on interest rate - https://structuredproducts-ch.leonteq.com/isin/CH1251797945. I have simulated the underlying interest rate by Vasicek ...
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Fitting volatility using SABR

I have been working on generating a volatility surface for options on SOFR futures with the help of the SABR model. I am running into some trouble for low strikes in particular, in that I cannot seem ...
Zac Likes Vol's user avatar
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I am trying to compute the the tail of a future roll using the ratio of forward dv01

I am trying to compute the the tail of a future roll using the ratio of forward dv01, per the link CME: Calendar Spreads with Tails : I am trying to compute the the tail of a future roll using the ...
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Vasicek model calibration to bond prices or rates (no swaptions)

I need to calibrate Vasicek's model $dr_{t} = a(\theta - r_{t})dt + \sigma dW_{t}$ in a market with no swaptions. I was thinking in estimating $\sigma$ with historic data, but I'm in the doubt with ...
Oliver Mohr Bonometti's user avatar
1 vote
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Determining the floating rate for an interest rate swap

I'm trying to price an Euribor 6M Swap and comparing this to Bloomberg's swap manager. However, I'm having some doubts on my implementation of getting the reset rate for the floating leg. In Bloomberg ...
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