Quantitative Finance Stack Exchange
Quantitative Finance Stack Exchange

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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What's the difference between PV01 and DV01 of a bond?

Seem to be confused over the difference between PV01 of a bond and DV01 of the bond. PV01, also known as the basis point value (BPV), specifies how much the price of an instrument changes if the interest rate changes by 1 basis point (0.01%). DV01…
lakshmen
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Why use swap-rates in a yield curve?

I have a question concerning interest yield curves. Many institutions use the Libor-swap rate curve as a yield curve. Let's be precise and say that we want the yield curve to be the curve that gives us the rate at which a well-rated bank can lend…
Steven G.
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Government bonds with negative yield

In the recent time-series of bonds issued by (for example) Germany, Austria and France we see an unfamiliar phenomenon: negative yields. This is mainly the issue on the short end of the yield curve. For a picture see:…
Julian Wergieluk
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Deriving spot rates from treasury yield curve

I've been experimenting with bond pricing using easily available data (treasury auction prices and treasury yield curves on treasury direct). At first I assumed that I could use the components yield curve to price any (risk free) series of cash…
Antoine Latter
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"Economic" Variables in Short Rate Models

Hull (9 ed.) states on p 707, "Equilibrium models usually start with assumptions about economic variables and derive a process for the short rate..." He then states the usual short rate models such as Vasicek's, given by $$ dr = a(b - r)dt +…
bcf
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Why does one-factor short-rate model tend to produce parallel shift of the yield curve?

I understand that one factor short rate model models the instantaneous rate given any moment in time. Can anyone explain how to derive a term structure from a short rate model and show that one-factor short-rate model tend to produce parallel shift…
user1559897
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How to remove the risk element from a set of fixed rate mortgage offerings?

Kept waiting in the bank yesterday, with no paint to watch dry, I found myself staring at the mortgage rates. (These are all annual interest rates): Variable: 2.475% 1 year: 2.90% 2 years: 3.05% 3 years: 3.15% 5 years: 3.30% 7 years: 3.35% 10…
Darren Cook
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3 Factor HJM model, do these factors have an economic meaning?

In the HJM model, in case we have 3 factors, do these factors have an economic meaning at all ?
DKK
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Bank of England base rate feed

I am implementing a program in Java that needs the Bank of England base rate. Rather than the user inputting this into the system, I have heard that there is a way to get a live feed of the base rate directly from (I am guessing) the Bank of England…
pd123
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Stochastic process for interest rates allowing negative values

The Cox-Ingersoll-Ross process for the short term interest rate r(t) does not allow r(t) to become negative, but short-term rates are negative in much of the developed world. To account for this, do you use a CIR process for a shadow rate r'(t) that…
Fortranner
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How to quantify how many ECB hikes are priced in?

My question comes in the same vein as the market estimates (roughly) how many hikes are priced in the US through looking at Fed Funds futures contracts. Is there a way to come up with a similar estimate in Europe, and if so, which contracts would…
Curious Student
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€str rates lower than ecb deposit yield

I have the following question : How can €str rate be lower than ecb deposit facility rates (deposit yield) ? Why would a bank lend money at that rate ? Thank you for your answers Edit : for instance Eonia rates are always higher than deposit yield,…
Geoffroy Montané
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Hull White and HJM model not Markov

In HJM model we have instaneous forward rate $f(t,T):$ $$d f(t,T) = v(t,T)v_T(t,T)d t - v_T(t,T)d W_t,$$ is Markov. And the spot rate $r(t)$ $$d r(t) = \left\{f_t(0,t) + \int^t_0 [v(\tau,t)v_{tt}(\tau,t)+v_{t}(\tau,t)^2]d\tau - \int^t_0…
A.Oreo
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Ridiculous Bond Prices under Vasicek Model

Has anyone played with the parameters of the Vasicek model and observed the sometimes ridiculous bond prices it implies? E.g. with the right parameters, a 30-year zero is priced at $147,327. To be specific, the SDE is $$ dr_t = a(b - r_t)dt +…
bcf
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"Spot rate is not observable" meaning

In Bruno Remillard's text, "Statistical Methods for Financial Engineering," he states the following on p 148 after giving the general form of a bond price $P(t,T)$ under Vasicek's model: Note that $P(t,T)$ depends only on $r(t)$ and the parameters…
bcf
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