# Tag Info

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### Interest rate implied probability of default

You can use the "credit triangle" which states that the (annualised) credit spread $S$ equals the annualised probability of default $p$ times the loss given default LGD which equals par minus the ...

### Central bank interest rates: are they quoted annualized?

Fed Funds are quoted on an annual basis so 0.5% means half a percent per year. The day count convention used is Actual/360 (note the use of 360, not 365 or 365.25. This old convention is common to ...

### OIS, Fed Funds Rate and Working

OIS (Overnight Index Swap) is a swap, that is a derivative, with a specified tenor (such as 37 days). It represents a "bet" as to what the geometric average overnight rate (FF rate in the United ...

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

I'll start by saying that if you found a cheaper way to hedge exactly the same risk, that would be arbitrage (assuming transaction costs don't invalidade the opposite position) Without going into ...

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

First and foremost, your premise that "most consumer loans/mortgages calculate interest daily based on act/365" is incorrect. At least in the United States, most single-family residential ...

### Why continuously compounded interest a standard in finance?

It's a Duplicate which was in turn closed because it is a basic financial question. Reading it will "back" up how they are related: You asked rubikscube09 if he has a toy example to back up ...

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

For a plain vanilla swap we can define the annuity $$A(t)\equiv\sum_{i=0}^{N-1} \tau_i P(t,T_{i+1})$$ and write the swap rate as $$S(t)\equiv\frac{P(t,T_0)-P(t,T_N)}{A(t)}$$ such that the swap price ...
Accepted

### How should we interpret r_c in continuously compounded interest?

I would add to the previous answer that it simplifies the maths around working with a large number (i.e. tending to infinity) of timesteps when modelling options and other derivatives.
1 vote

### Why do most interest rate formulas, and indeed finance in general, add 1 to a rate and then subtract afterwards?

The formula is multiplicative because interests are compounded (re-invested). Let's say you have 10% interest on a 1 USD deposit, compounded (calculated and paid) twice a year. That would be 5 cents ...
1 vote

### How are LIBOR rates beyond 12M arrived at?

If you want to estimate interbank lending rates beyond 12 months, the best you can do is look at where bonds issued by banks are trading. Sometimes there is loose talk (even by interviewers) that ...

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