Skip to content

Forward Rate Model (formula)

January 4, 2016

Given the correct spot rates can be used to calculate the forward rate, at it’s simplest

[1 + r(2)]^2 = [1 + r(1)]^1 * [1 + f(1,1)]^1

More generally

[1 + r(t+1)]^(t+1) = [1 + r(t)]^t * [1 + f(t1, t2)]^t

solve for f(t1,t2)

Advertisements

From → Asset Valuation

Leave a Comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: