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Questions tagged [risk-free]

The tag has no usage guidance.

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1answer
33 views

calculation of daily risk free rate?

I need to get daily risk free rate to measure my Capital asset pricing model. However, I am still confused on which proxy to use for that (my sample comprises German stocks). Some empirical studies ...
1
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1answer
46 views

if the​ risk-free interest rate​ increases, and nothing else changes, is the market portfolio still efficient?

I think the response is no but I don't know why If so, Stocks with betas greater than one will be buying opportunities and stocks with betas less than one will be selling opportunities because I can ...
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2answers
94 views

Why we can't lower a volatility of a portfolio (without changing expected return) by substituting a zero beta stock with a risk free asset?

part of the answer is that a zero-beta stock must be negatively correlated with other stocks in the portfolio. So having a zero beta stock can decrease the volatility. Does that mean that the ...
2
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3answers
119 views

Risk aversion and risk-free rates

New to finance. When I read textbook like Financial Economics by Bodie, I encountered the following idea, namely, higher risk aversion is associated with higher risk premium and lower risk-free rate. ...
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2answers
73 views

CAPM: Bond index as proxy for Rf

Is it possible to use a bond index as a proxy for Rf in CAPM? Please let me know what is the issue here.
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2answers
52 views

Why can a deterministic portfolio only grow at risk free rate

In black scholes derivation we assume that portfolio grows at risk free rate because the process is deterministic, my question is why is it riskfree rate? If i have information about some event in the ...
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1answer
44 views

What is considered the risk free rate? [closed]

I see some place reference the S&P 500 index (SPY) as the risk-free rate and other place reference the 10-year Treasury yield as the risk-free rate. Which one is the correct one?
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2answers
358 views

How does a Delta Hedged portfolio yield the Risk-free?

Here I'm considering the simple case of a dealer writing call options on a stock and hedging the short position with a "textbook" Delta Hedge, i.e. goes long on $N_c \times Delta$ stocks (where $N_c$ ...
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1answer
115 views

option call question

i have a question regarding a call option exercise i cant get my head around The price of a stock is 100, the continuously compounded risk free rate is 5%. The strike price of an european call option ...
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0answers
588 views

Constructing zero curve from Overnight Index Swaps (OIS) and Interest Rate Swaps (IRS)

Let's assume a task to build a zero curve from two sets of raw interest rates: set one contain 12 Overnight Index Swaps with maturities 1 month, 2 months, ... , 12 months; set two contains 7 Interest ...
0
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1answer
41 views

How to work out bond price given other bond prices?

I'm stuck on the following problem from a financial maths course, and was wondering whether anybody would be able to help me. I don't really know where to begin. The following risk free bonds are ...
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1answer
89 views

Calculating the Risk Free Rate [closed]

I have an assignment and I have to calculate the risk-free rate with the following data: Stock A: E(R) = 10% ; Standard Deviation = 5%. Stock B: E(R) = 20% ; Standard Deviation = 10%. I also ...
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1answer
80 views

How to correctly use SharpeRatio.annualized function with daily returns and proxy for daily risk free rate

I am not sure if am correctly using SharpeRatio.annualized function. I am passing following parameters (dailyRet, dailyRF, scale = 252), where dailyRet is an XTS type for daily returns, dailyRF is an ...
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0answers
294 views

daily risk-free rate proxy

3-month or 1-month Treasury bill yields are typically used as proxies for the risk-free rate. However, it is often the case that - especially for developing economies - that data is only available at ...
6
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2answers
1k views

Drift rate vs. Riskless rate in the Black-Scholes model

I'm teaching an applied math class this summer and I want to take a short detour into finance (not my specialty at all); specifically the Black-Scholes model of stock movements. I want my students to ...
3
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3answers
2k views

Why do we discount in ois and not treasuries

OIS is the 1-day non-collateralized interbank interest rate. Such a rate is not risk-free. The market trades a very useful curve that is much closer to "risk-free": the government bond curve. So the ...
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2answers
897 views

How to determine the risk free rate for the calculation of Beta

I want to calculate the beta of a computer vendor using return data from 31st Jan 2008 to 31 Jan 2013 (period of five years) against the return of S&P500. I will be regressing the excess return ...
4
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1answer
303 views

Why must the risk free rate be free from risk in risk neutral valuation?

I am reading through documentation related to Funding Valuation Adjustments (FVA) which discuss risk free rate and funding matters and the following question came to my mind: in risk neutral valuation ...
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2answers
538 views

Sharpe Ratio, risk free rate [closed]

when comparing the Sharpe Ratio (SR) of two different funds, does it make a difference, whether I use excess returs (returns - risk free rate) or returns (without dedcuting the risk free rate, ...
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0answers
113 views

Portfolio with several risky assets and one risk-free

Suppose we have $N$ risky assets $r_1$, $r_2$, ... , $r_N$ with a covariance matrix C. If we want to build a portfolio $\omega = (\omega_1, \ldots, \omega_N)^t$ (I loosely denote the portfolio with ...
0
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1answer
435 views

Is there any public data to get OIS for differal time (1d, 1W, 1M, …, 10Y)?

I want to get data of Overnight Index Swap, also known as OIS rate, there is any public why to get this always from yesterday? For example, I want to get EFFR(Effective Federal Funds Rate), I can get ...
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2answers
2k views

how to calculate daily risk free rate using 13 week treasury bill

I want to calculate excess return for AAPL plus the S&P 500. I have computed monthly and daily logarithmic returns for every stock and for the market, I now need to calculate the risk free ...
4
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6answers
921 views

What is the risk-free rate of a precious metal, e.g. gold?

The risk-free rate of a x-currency denominated instrument can be determined from treasury bills, interbank borrowing rates (e.g. LIBOR), overnight index rates or interest rate swaps. What instrument ...
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1answer
67 views

What is the risk-free asset?

We have $dB_t = rB_tdt$. We are told that this corresponds to a "bank"..... how? When I insert money into a bank, how does this correspond to buying an asset for the price $B_t$? It would make more ...
0
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1answer
61 views

What does equilibrium return on 90-day Treasury Bills mean?

I have been reading NZ Superfund's 2015 Ref Portfolio Review (here) and came across this notion: Our estimate of the equilibrium return on 90-day Treasury Bills is 5%. And this is under the column ...
4
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1answer
1k views

Risk-free: why LIBOR pre-crisis and OIS now

Quick question as a follow-up to this post: why was LIBOR used instead of OIS pre-2007 for the risk-free rate proxy? Please correct me if I am getting this mixed up, but from what I've seen, it ...
0
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1answer
125 views

Discussion about negative interest rate

Now I'm updating typical equity premium of CAPM and Fama French 3 factors. As you know, some of interest rates are already in negative. To calculate market factors, not so hard to apply them as risk ...
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0answers
100 views

Relation between mean and variance of a portfolio in modern portfolio theory:

I hope that this is the right place to ask my question! Let a market with $N\ge1$ risky assets and denote by $(R_i,i=1,\cdots, N)$ their returns and $R$ the vector of these $N$ returns. In addition, ...
2
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1answer
278 views

Valuing derivatives under stochastic interest rates

I would like to price a European option with maturity equals to 5 years. To do this, I'm using the Black-Scholes model with stochastic interest rates. Suppose I choose the CIR model for the risk-...
1
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1answer
128 views

Why is the Risk Free Rate 1 over Contingent Claim Prices?

Reading Asset Pricing by John Cochrane (2005), in his second chapter he defines the risk free rate as: Rf = 1 / sum [pc(s)] Where pc(s) are state contingent claims, where s is the state of nature ...
4
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1answer
2k views

Calculate excess returns for Sharpe Ratio with today's or past risk free rate of return?

I am struggling with the calculation of the Sharpe ratio. I am wondering whether to calculate the daily excess returns with today's risk free rate of return or the risk free rates corresponding to the ...
2
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2answers
279 views

Why is a risk-free portfolio desirable?

I am in the process of creating a program that generates status-quo variance-free portfolio (at least theoretically), and my question is pretty fundamental, which may just mean dumb. I am sorry if ...
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1answer
503 views

How to calculate weight of two stocks without knowing their correlation?

I have difficulty to solve attached question. The question asks me to find new weight of stocks by just changing standard deviation of the portfolio. I really do not have any idea how to solve it. ...
2
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2answers
805 views

Risk free rate proxy

Why is the US 30 day t bill traditionally used as a risk free rate instead of Euro bonds for example? They are both not going to default surely?
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0answers
212 views

Logic between options and risk free rate [closed]

What is the relationship between put option price and risk free rate? And between call options price and risk free rate? Explain the logic? No calculation.
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0answers
59 views

How should I use central banks rates in order to compute 2-day forward exchange rate on EURUSD

Good morning, I would like to compute a 2-day forward exchange rate on EURUSD. For that, I have historical data on EURUSD spot price, and I know that theoretically, when maturity is T we have : $F_0$...
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3answers
7k views

Which risk free rate is assumed by market when pricing american options?

I'm just started with finance, so maybe my question is dumb or answered elsewhere. Please guide me to relevant materials. According to put-call parity more time to expiration means more difference ...
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2answers
341 views

Why is the LIBOR-market model free of arbitrage?

Recently I have been reading a lot on the market models. One thing that keeps escaping me - why is the Libor-market model (LMM) assumed to e free of aritrage in continuous time ? To me this means ...
3
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2answers
417 views

How to determine risk-free rate of Ecuador?

I have a question in determining the risk-free rate of Ecuador. For developed countries like United States and Great Britain, the risk-free rate can be obtained in financial database such as Reuter or ...