# Questions tagged [interest]

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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 $r_c$, ...
• 101
1 vote
339 views

### 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 ...
• 2,521
56 views

### How does Bloomberg calculate interest rate for a government bond?

I am working in some related field and working on the data, I am curious that how did Bloomberg obtain the interest rate of a particular currency. In particular, one of my workings is on the HK ...
• 361
79 views

### Valuation discount rate using risk free interest rate versus inflation rate

Imagine a world where, for a given time period, the expected inflation rate is 10%, but the nominal risk free interest rate over the same period is 5%. Should my starting point - from a discounted ...
1 vote
71 views

### Which Model Should I Use for Pricing USD Interest Rate Caps (7, 10, 30 year maturities) on 1Month Rates?

I am trying to price USD interest rate caps on 1M rates (e.g., LIBOR, SOFR, etc.). The caps are designed to limit the exposure on non-callable USD Pay Float / Receive fixed positions in interest rate ...
115 views

### Annualizing the pay frequency of underlying swaps when bootstrapping the zero curve?

Say I'm looking to bootstrap two zero curves based on two swap curves with different underlying currencies and, consequently, two different pay structures in the swap contracts. For example, say I ...
• 1
68 views

### Why do we get a higher yield when we pay the interest at the end?(bonds)

I have an example where I show that if you pay the tax at the end of the bond period, the yield after tax is higher, but I am wondering if it is possible to give an explanation as to why it is like ...
• 125
795 views

### Is it possible to price a plain vanilla interest rate swap in Python and simulate the price using Hull White 1 Factor Model simultaneously?

I am trying to price plain vanilla interest rate swap (IRS) using QuantLib. What I am trying to do is to generate a path of simulated IRS price by simulating the interest rates using HW 1 Factor model....
1 vote
50 views

### Time step in Hull white mean reverting model

Specially for mean reverting processes for interest rate simulation. Is it acceptable to directly simulate the paths at say 1 month horizon without stepping through time? Please advice.
• 11
123 views

### Why continuously compounded interest a standard in finance? [closed]

Why is the "continuously compounded interest" the standard in finance? Many finance textbooks use the formula e^rt without justification. The assumption that the interest frequency is ...
• 520
251 views

### How to model fixed-rate loans or mortgages with act/365 but constant payment

My question I have a question on how to model the cashflows of fixed-rate loans or mortgages. Let's say the payments are monthly, and the rate remains constant throughout the life of the product; each ...
1 vote
81 views

### corporate bonds - general questions [closed]

Newbie here and not trading IRL but for a school assignment. I want to buy corporate bonds because they are a safe bet from what I read. I have a few questions though, I hope I will find an answer ...
• 11
127 views

### Cap/Floor on a SpreadOption grid

I have a spread option data from a broker. The rows are the following : STK ATM -0.5 -0.25 ... and the values are forward price ( the strikes used are absolute strike and the value of the raw STK is ...
188 views

### Bond Convexity & Interest Rates [closed]

I am having trouble understanding the convexity of bonds and the relationship among bonds with different convexities. Exactly what is convexity and what is a simple way to For instance, how is it ...
1 vote
86 views

### Swap curve is unsmooth at front end with naive interpolation

I am looking at swap curve building at front end and find it difficult to get a smooth forward curve with a fast generic algorithm. For example, EUR 6m curve has 6m deposit, and then a series of FRAs (...
• 11
1 vote
460 views

### Day count methods and actual coupon payments

Assume I have a bond that pays 5% coupon anually on the last day of the year. The day count method used to calculate accrued interest over time is "days actual / 360". The day before the ...
• 11
568 views

### Swaption PnL approximation/attribution

With a payer swaptions delta and gamma is there a method for approximating pnl for a given move in underlying swap rate? (An equivalent to the Taylor expansion for a vanilla call) Thanks!
233 views

### Properties of difference between continuous and discrete compounding of interest rate [closed]

The relationship between annual discrete and continuous compounding interest rates is given as: $$1+r_d = e^{r_c}$$ My question is what are the properties of the difference between $r_d$ and $r_c$? ...
• 5,719
102 views

### Why Bond pricing formula is changed? [closed]

When I first learn about finance, a bond with continuous yield was priced via $$Z = e^{-rT},$$ where $r$ is the yield, $T$ the time to maturity. But, when I learned about stochastic interest rate ...
1 vote
203 views

### What is the cheaper IR hedge: Futures or IRS?

Let's take the following idea: Your objective is to hedge interest rate risk. You decide between Futures and IRS: You can sell bund futures (10Y bond equivalent): Price 177.70 Theoretical coupon: 6%...
310 views

### Simple forward price of a commodity formula

Given the spot price of a commodity C, an annual interest rate r, a time to maturity in years t, and storage and insurance cots to maturity s we can express the forward price (using simple interest) ...
• 939
81 views

### What are "local" and "foreign" interest rate in this formula? [closed]

I found this formula to find fair value of a forex pair: FV = Spot × e(local interest rate−foreign interest rate) × T Taken for example AUDUSD, Spot is AUD per USD. T is the time to maturity of ...
• 3
1 vote
29 views

### How to solve for effective interest rate of a government bond on HP 10bll+ financial calculator? [closed]

Price of bond = 100.44 Nominal coupon interest rate (compounded annually) = 1.5% Duration: 10 years Face value (what you get back after 10 years, may be poor translation): 100 Spent hours now trying ...