# 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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### Do stochastic interest rate models forecast future interest rate?

And if so, can they be used to estimate the future price of bonds?
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### Synthetic FRAs using Eurodollar futures

In order to create a synthetic FRA position of 30-day FRA on 90-day LIBOR, the diagram below shows that we can enter into positions by going long a 120-day Eurodollar contract and short a 30-day ...
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### HJM framework and expectations hypothesis, updated

Is there a way one can decompose the yield of say a government bond with respect the the HJM framework? (into say an expectations component and a term premium component). As far as I can see the HJM ...
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### LIBOR Curve bootstrapping and compounding

I am currently reading about swap pricing based on using the LIBOR curve to calculate spot rates, forward rates, and discount rates. From what I understand LIBOR is quoted as a simple interest rate ...
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### If short rates $r(t)$ do not determine the bond prices $P(t, T)$, then what is the basis for short rate models?

The question title says it all: We know that in general, specifying the short rate $r(t)$ does not specify the bond prices $P(t, T)$. So how can a model for short rates—for example the Vasicek model—...
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### Transforming non-normally distributed interest rates for OLS regression

I am studying the effects of short- and long-term interest rates on bank risk-taking in the Euro zone countries. To analyse the effects, I will use, amongst other, an OLS regression. However I have ...
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### Effective Annual Interest Rate (EAIR) in a 12-month loan [closed]

A \$980 loan is paid over 12 months in 12 equal payments of$90 each. What is the loan's EAIR? 980/12=81.666…. (monthly principal payment) 90-81.6666….=8.3333….. (monthly interest payment) ...
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I would like to price a spreadlock forward swap and a spreadlock swaption but I don't find in the web any research article. Would you please provide me with some freely accessible papers on the web ? ...
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### Futures and Forward Prices vs interest rates

Textbooks usually state that if an asset's prices are positively correlated with interest rate movements, then its Futures price is going to be greater than its Forward Price assuming the same ...
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### When exactly does the FOMC release the new calendar dates?

Please let me know if this is the appropriate place to post this. I know every year the federal reserve releases the calendar dates for the next year's meetings around May or June. Is there a ...
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### Generic bond yields

I was looking on historical sovereign bond yields for a project. I was wondering what is meant by "generic bond yields" mentioned on bloomberg. Somewhere else i found data about the same country but ...
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### Black 1976 caplet value

I've seen from two sources different formulas for the caplet value (Black 1976): $$Caplet_1 = N\cdot DiscountFactor_{0,k}\cdot yrFrcn_{k,k+1}\cdot [F_{k,k+1}\cdot N(d_1) - R_k\cdot N(d_2)]$$  ...
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### Does the FED lend directly to commercial&investment banks or is there an intermediary

I has looking at this video on how interest rates are set. When the process of borrowing from the FED to commercial banks is explained, another entity is described(around 00:40). So when the FED ...
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### Difference between a 3-months UK nominal spot rate and a 3-months UK treasury bill discount rate?

I am trying to collect data I could use for calibration of a short-rate modeling process, so I need data which represents the historical short-rates. On the Bank of England webpage I came across the ...
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### Why can't/doesn't the Fed adjust the federal funds interest rate continuously?

Maybe the question I'm asking doesn't make sense-- but this is something I've wondered about since I learned about the Fed in high school. The media typically talks about Fed interest rate changes as ...
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### Effective Annual Rate (EAR) calculation from periodic rate of invoice credit

I'm working on a finance class related problem, concerning the Effective Annual Rate (EAR) of an invoice credit rate. The standard formula of the EAR is: $EAR = \big(1 + \frac{APR}{m}\big)^{m}-1$ ...
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### Pricing a physical commodity forward contract

I have just started reading Options Volatility and Pricing 2nd edition and I'm a little confused on forward contract pricing. The book states ...
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### Ho-Lee model - A and B derivation for $P(t,T)=e^{-A(t,T)-B(t,T)r_t}$

I am analyzing the transition of the bond prices in the affine models in the form of $P(t,T)=e^{-A(t,T)-B(t,T)r_t}$ using the property that the diffusion and the drift of an affine model can be ...
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### Can we derive 5 year zero coupon interest rate by using 1, 2 and 3 year zero coupon interest rate?

Given that the 1 year zero coupon bond interest rate is 5%, 2 year zero coupon bond interest rate is 6% and 3 year zero coupon bond interest rate is 7%. 4 year coupon bond price and interest rate are ...
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### AUD Swap Reference Rate?

So I understand that BBSW is the reference rate used in AUD swap transactions since AUD LIBOR has been discontinued. If I want to build a curve out of the reference rates used to price AUD swaps, I ...
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### Price of an equity

An equity has a value of 100 Euros, and pay a dividend of 5 Euros in 6 months. The interest rate of 6 months is 5% and the interest rate for 1 year is 6%. I would like to compute the value of the ...
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### Equitable Allocation

This questions borders on the actuarial side of things but the general solution should have relevance in several situations. Suppose we have a set of $k$ people who will retire in $\{n_1,...,n_k\}$ ...
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### Interest Rate and Price of Assets

I have a very basic question about finance. I know that for an asset, the price is inversly related to the yield to maturity, or the interest rate. However, I have three ways of thinking about this ...
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### can an fx forward price simply be divided into 1 to quote the inverse?

Qu 1. Say I ask for EURUSD 1 week and get prices: 1.120986 / 1.120216 Does that mean to price USDEUR 1 week I can divide 1 / 1.120216 and 1 / 1.120986 and get rates: 0.8921 / 0.8927 Or is that ...
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### Bootstrapping zero-rates from AUD swap rates

I have a pay fixed / receive floating interest-rate-swap on the AUD BBSY that I'd like to price for the purposes of accounting. I understand the general process to be as follows (assuming single-...
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### Non-intuitive correlation between S&P sector indexes and economic indicators

I am trying to understand how changes in economic indicators like Unemployment Rate, Inflation Rate, and Consumer Sentiment affect the portfolio values. For that I want to measure the correlation ...
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### Zero Curve Calculation for AUD, CAD (post LIBOR scandal)

In the end of May 2013 British Bankers Association (BBA) stopped publishing LIBOR rates for Australian and Canadian dollars in a light of recent scandals. LIBOR rates were essential for creating zero ...