The relationship between the spot and Forward Rates: Example 1 1=10% f2=? 10.5% 10.5% Charles cao
6 Charles Cao The Relationship Between the Spot and Forward Rates: Example 1 r1 = 10% f2 = ? r2 = 10.5% r2 =10.5%
The relationship between the spot and Forward Rates: Example 1 100e*/2 2 100e 1*1+f2*1_。72*2 3 米1 1 2 P*2-n1 f2=0.105*2-0.10=0.1=11% Charles cao
7 Charles Cao The Relationship Between the Spot and Forward Rates: Example 1 f . . . % f r r r f r e e e e e r f r r f r 0 105 2 0 10 0 11 11 2 1 1 2 100 100 2 2 2 1 1 2 2 1 1 2 1 1 2 1 2 2 1 2 2 = − = = = − + = = = +
The relationship between the spot and Forward Rates: Example 2 2-year zero, /2 =10.5% 3-year zero, B3=10.8% Infer the forward rate, f, the interest rate from the beginning to the end of the third year Charles cao
8 Charles Cao The Relationship Between the Spot and Forward Rates: Example 2 ◼ 2-year zero, r2 = 10.5% ◼ 3-year zero, r3 = 10.8% ◼ Infer the forward rate, f3 , the interest rate from the beginning to the end of the third year
The relationship between the spot and Forward Rates: Example 2 72=10.5 2=105% f3 3=10.8%73=108%73=10.8 Charles cao
9 Charles Cao The Relationship Between the Spot and Forward Rates: Example 2 r3 = 10.8% r r3 = 10.8% 3 = 10.8% r2 = 10.5% f r2 = 10.5% 3 = ?
The relationship between the spot and Forward Rates: Example 2 100e72*2e/31=100已3*3 e2*2+/3*1 =e3*3 P*2+∫3米 3 J∫3 33 3-2*2 ∫3=0.108*3-0.105*2=0.114=11.4% Charles cao
10 Charles Cao The Relationship Between the Spot and Forward Rates: Example 2 f . . . . % f r r r f r e e e e e r f r r f r 0 108 3 0 105 2 0 114 11 4 3 2 2 1 3 100 100 3 3 3 2 2 3 3 2 1 3 2 1 3 2 3 3 2 3 3 = − = = = − + = = = +