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## Hot answers tagged term-structure

10 votes
Accepted

### Do we use the Nelson-Siegel model to calculate the yield curve?

In the beginning, we had a plot of yields of individual bonds against time to maturity, the crudest form of "yield curve." Years later, people began hand-drawing a smoothed line through these yields ...
• 11.8k
5 votes
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### SVI model and Greeks calculation

The SVI is simply a function (empirically fit to the data) which given a maturity and a strike price K, computes a BS implied volatility $\sigma$. Once you have that implied volatility you can plug it ...
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5 votes

### How to de-seasonalize natural gas term structure data?

As a starting point to this, determining seasonality for a given market is as follows: i) Take several years of historical spot price time series, e.g. TTF spot prices. For year $i$ work out a yearly ...
• 1,671
5 votes
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### What is actually going on in Monte-Carlo simulation for Mortgage backed securities?

In my understanding, the mortgage prepayment option, at any point in time, is a function of the value of the mortgage from that point in time forward. This value, in turn, is a function of the future ...
• 6,977
5 votes

### What is the state of the art govie bond term structure recently

I interpret your question to be asking about curve fitting techniques (for constructing fitted par/zero curves), since a term structure model (HW, LMM, etc.) can always be constructed to fit a given ...
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3 votes

### Contango and backwardation in VIX futures

Since contracts on physical goods have associated costs, it makes sense that the term structure curve would be upward sloping. Since there is no cost associated with delivery for the VIX and contango ...
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3 votes
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### Deriving interest rate term structure in a short rate model

This is indeed a standard result. You can convince yourself by noticing The bank account grows from 1 at $t=\tau$ to $E\left[\exp(\int_\tau^T r(u)du)|\mathscr{F}_\tau\right]$ at time $T$ The price of ...
• 2,023
3 votes
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### Fitting the Term structure of Discount Bonds with Ho-Lee

What they are referring to is a very simplified version of the Ho-Lee model, i.e. on that assumes $$r(t)=r(0)+{\sigma}W(t)$$ where ${\sigma}$ is a constant (annualized StDev). For the sake of ...
• 745
3 votes
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### Valuing derivatives under stochastic interest rates

A few points can be noted. The CIR model is usually for a short, or instantaneous, spot rate $r_t$, which is the forward rate over an infinitesimal interval. That is, \begin{align*} r_t = \lim_{\...
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3 votes

### Why should future short rates tend towards the current term structure of interest rates?

It really depends for what purpose you are using the model. Letâ€™s say you are using it for valuation of some instrument. If you want the fair market value, then a) is irrelevant and you would instead ...
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2 votes

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### Forward interest rate curve family parametrization

You've correctly identified that the forward curve indeed has two time indices -- one for when we observe it, and one for the future date at which the forward rate applies. I would personally take the ...
• 635
2 votes
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### Skewness Equivalent to Additivity of Variance

Update: I think i misunderstood your question, so let me add another answer as well. Answer A will derive a formula for forward skewness, answer B will show the general property of skewness as a ...
• 6,977
1 vote
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### What is the Q-dynamics of affine bond prices when r is described by the given model?

You can simply use Ito's lemma under the risk neutral measure $Q$.For the log-bond price $p(t,T)$ this gives $$dp(t,T)=(A_t(t,T)-B_t(t,T)r_t)dt-B(t,T)dr_t$$ =[A_t(t,T)-(B_t(t,T)+B(t,T)a)r_t]dt-B(t,T)...
• 1,727
1 vote
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### About the implied volatility as average volatility over the life of an option

Under your hypotheses, the implied volatility at which you close the trade out will be the forward volatility $\sigma_3$ where $\sigma_3<\sigma_2$, so you will make a loss on that. This loss will ...
• 17.4k
1 vote

### Term Structure of Corporate Bond

On Bloomberg: CRVF ("Curve Finder"), pick your country/region then tab 12 for credit. This will give you curves by sector and/or by ratings bucket, though ...
• 2,272
1 vote

### OIS rate to build Term structure

This is my most up-to-date understanding of the matter: (i) OIS Swaps are here to stay. Already today, in the US, there two types of OIS Swaps, ones indexed to the Effective Federal Funds Rate (EFFR) ...
• 6,223
1 vote
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### Affine term structure for CDS

In a (very small) nutshell, the estimation idea is the following: Quoted CDS contracts are driven by a risk neutral default probability $PD_Q(\tau\leq T)$. The default probability is again modeled ...
• 6,977
1 vote

### Hazard rate and Term structure model

The paper on Jun Pan's page. The only quotes readily observable in the market are quotes for a few tenors of the standard CDS contract. Please recall that the standard credit default swap essentially ...
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1 vote

### backtest VIX term structure strategy

This is not an answer, but instead advice: Since you're new to quant and volatility then you should start with something other than a volatility or a rates product because those are going to be some ...

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