Interest Rate Futures

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Interest Rate Futures"

Transcription

1 Interest Rate Futures Chapter 6 6.1

2 Day Count Conventons n the U.S. (Page 129) Treasury Bonds: Corporate Bonds: Money Market Instruments: Actual/Actual (n perod) 30/360 Actual/360 The day count conventon s used to calculate the nterest earned between the two dates 6.2

3 Treasury Bond (>10yrs) Prce Quotes n the U.S. Cash prce (drty prce) = Quoted prce (clean prce) + Accrued Interest 6.3

4 Treasury Bond Futures Pages The short sde can delver any government bond has more than 15 years to maturty on the frst day of the delvery month and s not callable wth 15 years from that day 6.4

5 Treasury Bond Futures Pages Cash prce receved by party wth short poston = Most Recent Settlement Prce Converson factor + Accrued nterest 6.5

6 Example Quoted prce of bond futures = Converson factor = Accrued nterest on bond =3.00 Prce receved for bond s = $ (per $100 of prncpal) 6.6

7 Converson Factor The converson factor for a bond s approxmately equal to the value of the bond on the assumpton that the yeld curve s flat at 6% wth semannual compoundng 6.7

8 CBOT T-Bonds & T-Notes Factors that affect the futures prce: Delvery can be made any tme durng the delvery month Any of a range of elgble bonds can be delvered The wld card play Above statements descrbe the delvery opton n the Treasury bond futures contract 6.8

9 Eurodollar Futures (Page ) A Eurodollar s a dollar deposted n a bank outsde the Unted States The Eurodollar nterest rate s the rate of nterest earned on Eurodollars deposted by one bank wth another bank. It s essentally the same as LIBOR ntroduced before Eurodollar futures are futures locks the 3- month Eurodollar depost forward rate at the maturty date of the futures 6.9

10 Eurodollar Futures contnued One contract s on the rate earned on $1 mllon If Z s the quoted prce of a Eurodollar futures contract, the value of one contract s 10,000[ (100-Z)] A change of one bass pont or 0.01 n a Eurodollar futures quote corresponds to a contract prce change of $

11 Eurodollar Futures contnued A Eurodollar futures contract s settled n cash When t expres (on the thrd Wednesday of the delvery month) Z s set equal to 100 mnus the 90 day Eurodollar nterest rate (actual/360) and all contracts are closed out 6.11

12 Example Suppose you buy (take a long poston n) a contract on November 1 The contract expres on December 21 The prces are as shown How much do you gan or lose a) on the frst day, b) on the second day, c) over the whole tme untl expraton? 6.12

13 Example Date Nov 1 Nov 2 Nov 3. Dec 21 Quote

14 Example contnued If on Nov. 1 you know that you wll have $1 mllon to nvest on for three months on Dec 21, the contract locks n a rate of = 2.88% In the example you earn = 2.58% on $1 mllon for three months (=$6,450) and make a gan day by day on the futures contract of 30 $25 =$

15 Forward Rates and Eurodollar Futures (Page ) Eurodollar futures contracts last as long as 10 years For Eurodollar futures lastng beyond two years we cannot assume that the forward rate equals the futures rate 6.15

16 Forward Rates and Eurodollar Futures contnued There are two reasons Futures s settled daly where forward s settled once Futures s settled at the begnnng of the underlyng three-month perod; forward s settled at the end of the underlyng threemonth perod The varable underlyng the Eurodollar futures contract s an nterest rate and tends to be hghly postvely correlated to other nterest rates => futures rate > forward rates 6.16

17 Forward Rates and Eurodollar Futures contnued A " convexty adjustment " 1 Forward rate = Futures rate σ 2 where t s the tme to maturty of per 1 futures contract, (90 days later standard devaton of year t (typcally 2 the rate underlyng the futures contract than s the maturty of t σ 1 ) and σ the short s about often made s 2 s the t t ) 2 the rate changes 6.17

18 Convexty Adjustment when σ=0.012 (Table 6.3, page 141) Maturty of Futures Convexty Adjustment (bps)

19 Extendng the LIBOR Zero Curve LIBOR depost rates defne the LIBOR zero curve out to one year Eurodollar futures can be used to determne forward rates and the forward rates can then be used to bootstrap the zero curve 6.19

20 6.20 Example so that If the 400 day LIBOR rate has been calculated as 4.80% and the forward rate for the perod between 400 and 491 days s 5.30 the 491 days rate s 4.893% T T R T T R F = ) ( = T R T T T F R

21 Duraton Matchng Ths nvolves hedgng aganst nterest rate rsk by matchng the duratons of assets and labltes It provdes protecton aganst small parallel shfts n the zero curve 6.21

22 Use of Eurodollar Futures One contract locks n an nterest rate on $1 mllon for a future 3-month perod How many contracts are necessary to lock n an nterest rate for a future sx month perod? 6.22

23 Duraton-Based Hedge Rato PD F C P D F nterest rate futures wll be shorted for hedge F C D F P D P Contract prce for nterest rate futures Duraton of asset underlyng futures at maturty Value of portfolo beng hedged Duraton of portfolo at hedge maturty 6.23

24 Example It s August. A fund manager has $10 mllon nvested n a portfolo of government bonds wth a duraton of 6.80 years and wants to hedge aganst nterest rate moves between August and December The manager decdes to use December T-bond futures. The futures prce s or and the duraton of the cheapest to delver bond s 9.2 years The number of contracts that should be shorted s 10,000,000 93, =

25 Lmtatons of Duraton-Based Hedgng Assumes that only parallel shft n yeld curve take place Assumes that yeld curve changes are small 6.25

26 GAP Management (Busness Snapshot 6.3) Ths s a more sophstcated approach used by banks to hedge nterest rate. It nvolves Bucketng the zero curve Hedgng exposure to stuaton where rates correspondng to one bucket change and all other rates stay the same. 6.26

Hedging Interest-Rate Risk with Duration

Hedging Interest-Rate Risk with Duration FIXED-INCOME SECURITIES Chapter 5 Hedgng Interest-Rate Rsk wth Duraton Outlne Prcng and Hedgng Prcng certan cash-flows Interest rate rsk Hedgng prncples Duraton-Based Hedgng Technques Defnton of duraton

More information

550.444 Introduction to Financial Derivatives

550.444 Introduction to Financial Derivatives 550.444 Introduction to Financial Derivatives Week of October 7, 2013 Interest Rate Futures Where we are Last week: Forward & Futures Prices/Value (Chapter 5, OFOD) This week: Interest Rate Futures (Chapter

More information

Interest Rate Futures. Chapter 6

Interest Rate Futures. Chapter 6 Interest Rate Futures Chapter 6 1 Day Count Convention The day count convention defines: The period of time to which the interest rate applies. The period of time used to calculate accrued interest (relevant

More information

Bond futures. Bond futures contracts are futures contracts that allow investor to buy in the

Bond futures. Bond futures contracts are futures contracts that allow investor to buy in the Bond futures INRODUCION Bond futures contracts are futures contracts that allow nvestor to buy n the future a theoretcal government notonal bond at a gven prce at a specfc date n a gven quantty. Compared

More information

Section 2.3 Present Value of an Annuity; Amortization

Section 2.3 Present Value of an Annuity; Amortization Secton 2.3 Present Value of an Annuty; Amortzaton Prncpal Intal Value PV s the present value or present sum of the payments. PMT s the perodc payments. Gven r = 6% semannually, n order to wthdraw $1,000.00

More information

Section 5.4 Annuities, Present Value, and Amortization

Section 5.4 Annuities, Present Value, and Amortization Secton 5.4 Annutes, Present Value, and Amortzaton Present Value In Secton 5.2, we saw that the present value of A dollars at nterest rate per perod for n perods s the amount that must be deposted today

More information

Using Series to Analyze Financial Situations: Present Value

Using Series to Analyze Financial Situations: Present Value 2.8 Usng Seres to Analyze Fnancal Stuatons: Present Value In the prevous secton, you learned how to calculate the amount, or future value, of an ordnary smple annuty. The amount s the sum of the accumulated

More information

Interest Rate Forwards and Swaps

Interest Rate Forwards and Swaps Interest Rate Forwards and Swaps Forward rate agreement (FRA) mxn FRA = agreement that fxes desgnated nterest rate coverng a perod of (n-m) months, startng n m months: Example: Depostor wants to fx rate

More information

7.5. Present Value of an Annuity. Investigate

7.5. Present Value of an Annuity. Investigate 7.5 Present Value of an Annuty Owen and Anna are approachng retrement and are puttng ther fnances n order. They have worked hard and nvested ther earnngs so that they now have a large amount of money on

More information

Simple Interest Loans (Section 5.1) :

Simple Interest Loans (Section 5.1) : Chapter 5 Fnance The frst part of ths revew wll explan the dfferent nterest and nvestment equatons you learned n secton 5.1 through 5.4 of your textbook and go through several examples. The second part

More information

Joe Pimbley, unpublished, 2005. Yield Curve Calculations

Joe Pimbley, unpublished, 2005. Yield Curve Calculations Joe Pmbley, unpublshed, 005. Yeld Curve Calculatons Background: Everythng s dscount factors Yeld curve calculatons nclude valuaton of forward rate agreements (FRAs), swaps, nterest rate optons, and forward

More information

8.4. Annuities: Future Value. INVESTIGATE the Math. 504 8.4 Annuities: Future Value

8.4. Annuities: Future Value. INVESTIGATE the Math. 504 8.4 Annuities: Future Value 8. Annutes: Future Value YOU WILL NEED graphng calculator spreadsheet software GOAL Determne the future value of an annuty earnng compound nterest. INVESTIGATE the Math Chrstne decdes to nvest $000 at

More information

Lecture 3: Force of Interest, Real Interest Rate, Annuity

Lecture 3: Force of Interest, Real Interest Rate, Annuity Lecture 3: Force of Interest, Real Interest Rate, Annuty Goals: Study contnuous compoundng and force of nterest Dscuss real nterest rate Learn annuty-mmedate, and ts present value Study annuty-due, and

More information

Solution: Let i = 10% and d = 5%. By definition, the respective forces of interest on funds A and B are. i 1 + it. S A (t) = d (1 dt) 2 1. = d 1 dt.

Solution: Let i = 10% and d = 5%. By definition, the respective forces of interest on funds A and B are. i 1 + it. S A (t) = d (1 dt) 2 1. = d 1 dt. Chapter 9 Revew problems 9.1 Interest rate measurement Example 9.1. Fund A accumulates at a smple nterest rate of 10%. Fund B accumulates at a smple dscount rate of 5%. Fnd the pont n tme at whch the forces

More information

Thursday, December 10, 2009 Noon - 1:50 pm Faraday 143

Thursday, December 10, 2009 Noon - 1:50 pm Faraday 143 1. ath 210 Fnte athematcs Chapter 5.2 and 4.3 Annutes ortgages Amortzaton Professor Rchard Blecksmth Dept. of athematcal Scences Northern Illnos Unversty ath 210 Webste: http://math.nu.edu/courses/math210

More information

10.2 Future Value and Present Value of an Ordinary Simple Annuity

10.2 Future Value and Present Value of an Ordinary Simple Annuity 348 Chapter 10 Annutes 10.2 Future Value and Present Value of an Ordnary Smple Annuty In compound nterest, 'n' s the number of compoundng perods durng the term. In an ordnary smple annuty, payments are

More information

Lecture 3: Annuity. Study annuities whose payments form a geometric progression or a arithmetic progression.

Lecture 3: Annuity. Study annuities whose payments form a geometric progression or a arithmetic progression. Lecture 3: Annuty Goals: Learn contnuous annuty and perpetuty. Study annutes whose payments form a geometrc progresson or a arthmetc progresson. Dscuss yeld rates. Introduce Amortzaton Suggested Textbook

More information

1. Math 210 Finite Mathematics

1. Math 210 Finite Mathematics 1. ath 210 Fnte athematcs Chapter 5.2 and 5.3 Annutes ortgages Amortzaton Professor Rchard Blecksmth Dept. of athematcal Scences Northern Illnos Unversty ath 210 Webste: http://math.nu.edu/courses/math210

More information

Time Value of Money. Types of Interest. Compounding and Discounting Single Sums. Page 1. Ch. 6 - The Time Value of Money. The Time Value of Money

Time Value of Money. Types of Interest. Compounding and Discounting Single Sums. Page 1. Ch. 6 - The Time Value of Money. The Time Value of Money Ch. 6 - The Tme Value of Money Tme Value of Money The Interest Rate Smple Interest Compound Interest Amortzng a Loan FIN21- Ahmed Y, Dasht TIME VALUE OF MONEY OR DISCOUNTED CASH FLOW ANALYSIS Very Important

More information

In our example i = r/12 =.0825/12 At the end of the first month after your payment is received your amount in the account, the balance, is

In our example i = r/12 =.0825/12 At the end of the first month after your payment is received your amount in the account, the balance, is Payout annutes: Start wth P dollars, e.g., P = 100, 000. Over a 30 year perod you receve equal payments of A dollars at the end of each month. The amount of money left n the account, the balance, earns

More information

Multiple discount and forward curves

Multiple discount and forward curves Multple dscount and forward curves TopQuants presentaton 21 ovember 2012 Ton Broekhuzen, Head Market Rsk and Basel coordnator, IBC Ths presentaton reflects personal vews and not necessarly the vews of

More information

Mathematics of Finance

Mathematics of Finance Mathematcs of Fnance 5 C H A P T E R CHAPTER OUTLINE 5.1 Smple Interest and Dscount 5.2 Compound Interest 5.3 Annutes, Future Value, and Snkng Funds 5.4 Annutes, Present Value, and Amortzaton CASE STUDY

More information

Section 5.3 Annuities, Future Value, and Sinking Funds

Section 5.3 Annuities, Future Value, and Sinking Funds Secton 5.3 Annutes, Future Value, and Snkng Funds Ordnary Annutes A sequence of equal payments made at equal perods of tme s called an annuty. The tme between payments s the payment perod, and the tme

More information

10. (# 45, May 2001). At time t = 0, 1 is deposited into each of Fund X and Fund Y. Fund X accumulates at a force of interest

10. (# 45, May 2001). At time t = 0, 1 is deposited into each of Fund X and Fund Y. Fund X accumulates at a force of interest 1 Exam FM questons 1. (# 12, May 2001). Bruce and Robbe each open up new bank accounts at tme 0. Bruce deposts 100 nto hs bank account, and Robbe deposts 50 nto hs. Each account earns an annual e ectve

More information

On some special nonlevel annuities and yield rates for annuities

On some special nonlevel annuities and yield rates for annuities On some specal nonlevel annutes and yeld rates for annutes 1 Annutes wth payments n geometrc progresson 2 Annutes wth payments n Arthmetc Progresson 1 Annutes wth payments n geometrc progresson 2 Annutes

More information

Mathematics of Finance

Mathematics of Finance 5 Mathematcs of Fnance 5.1 Smple and Compound Interest 5.2 Future Value of an Annuty 5.3 Present Value of an Annuty;Amortzaton Chapter 5 Revew Extended Applcaton:Tme, Money, and Polynomals Buyng a car

More information

0.02t if 0 t 3 δ t = 0.045 if 3 < t

0.02t if 0 t 3 δ t = 0.045 if 3 < t 1 Exam FM questons 1. (# 12, May 2001). Bruce and Robbe each open up new bank accounts at tme 0. Bruce deposts 100 nto hs bank account, and Robbe deposts 50 nto hs. Each account earns an annual effectve

More information

In our example i = r/12 =.0825/12 At the end of the first month after your payment is received your amount owed is. P (1 + i) A

In our example i = r/12 =.0825/12 At the end of the first month after your payment is received your amount owed is. P (1 + i) A Amortzed loans: Suppose you borrow P dollars, e.g., P = 100, 000 for a house wth a 30 year mortgage wth an nterest rate of 8.25% (compounded monthly). In ths type of loan you make equal payments of A dollars

More information

Hedge accounting within IAS39

Hedge accounting within IAS39 Economc and Fnancal Report 2002/02 Hedge accountng wthn IAS39 Alessandro Ross, Gudo Bchsao and Francesca Campolongo Economc and Fnancal Studes European Investment Bank 00, boulevard Konrad Adenauer L-2950

More information

Time Value of Money Module

Time Value of Money Module Tme Value of Money Module O BJECTIVES After readng ths Module, you wll be able to: Understand smple nterest and compound nterest. 2 Compute and use the future value of a sngle sum. 3 Compute and use the

More information

The Application of Fractional Brownian Motion in Option Pricing

The Application of Fractional Brownian Motion in Option Pricing Vol. 0, No. (05), pp. 73-8 http://dx.do.org/0.457/jmue.05.0..6 The Applcaton of Fractonal Brownan Moton n Opton Prcng Qng-xn Zhou School of Basc Scence,arbn Unversty of Commerce,arbn zhouqngxn98@6.com

More information

Mathematics of Finance

Mathematics of Finance CHAPTER 5 Mathematcs of Fnance 5.1 Smple and Compound Interest 5.2 Future Value of an Annuty 5.3 Present Value of an Annuty; Amortzaton Revew Exercses Extended Applcaton: Tme, Money, and Polynomals Buyng

More information

Section 2.2 Future Value of an Annuity

Section 2.2 Future Value of an Annuity Secton 2.2 Future Value of an Annuty Annuty s any sequence of equal perodc payments. Depost s equal payment each nterval There are two basc types of annutes. An annuty due requres that the frst payment

More information

Level Annuities with Payments Less Frequent than Each Interest Period

Level Annuities with Payments Less Frequent than Each Interest Period Level Annutes wth Payments Less Frequent than Each Interest Perod 1 Annuty-mmedate 2 Annuty-due Level Annutes wth Payments Less Frequent than Each Interest Perod 1 Annuty-mmedate 2 Annuty-due Symoblc approach

More information

IDENTIFICATION AND CORRECTION OF A COMMON ERROR IN GENERAL ANNUITY CALCULATIONS

IDENTIFICATION AND CORRECTION OF A COMMON ERROR IN GENERAL ANNUITY CALCULATIONS IDENTIFICATION AND CORRECTION OF A COMMON ERROR IN GENERAL ANNUITY CALCULATIONS Chrs Deeley* Last revsed: September 22, 200 * Chrs Deeley s a Senor Lecturer n the School of Accountng, Charles Sturt Unversty,

More information

Solutions 2. 1. For the benchmark maturity sectors in the United States Treasury bill markets,

Solutions 2. 1. For the benchmark maturity sectors in the United States Treasury bill markets, FIN 472 Professor Robert Hauswald Fixed-Income Securities Kogod School of Business, AU Solutions 2 1. For the benchmark maturity sectors in the United States Treasury bill markets, Bloomberg reported the

More information

benefit is 2, paid if the policyholder dies within the year, and probability of death within the year is ).

benefit is 2, paid if the policyholder dies within the year, and probability of death within the year is ). REVIEW OF RISK MANAGEMENT CONCEPTS LOSS DISTRIBUTIONS AND INSURANCE Loss and nsurance: When someone s subject to the rsk of ncurrng a fnancal loss, the loss s generally modeled usng a random varable or

More information

Stock Profit Patterns

Stock Profit Patterns Stock Proft Patterns Suppose a share of Farsta Shppng stock n January 004 s prce n the market to 56. Assume that a September call opton at exercse prce 50 costs 8. A September put opton at exercse prce

More information

Risk Management and Financial Institutions

Risk Management and Financial Institutions Rsk Management and Fnancal Insttutons By John C. Hull Chapter 3 How Traders manage Ther Exposures... Chapter 4 Interest Rate Rsk...3 Chapter 5 Volatlty...5 Chapter 6 Correlatons and Copulas...7 Chapter

More information

Reporting Instructions for Schedules A through S

Reporting Instructions for Schedules A through S FFIEC 0 Reportng Instructons for Schedules A through S FFIEC 0 FFIEC 0 CONTENTS INSTRUCTIONS FOR PREPARATION OF FFIEC 0 Rsk-Based Captal Reportng for Insttutons Subject to the Advanced Captal Adequacy

More information

A Model of Private Equity Fund Compensation

A Model of Private Equity Fund Compensation A Model of Prvate Equty Fund Compensaton Wonho Wlson Cho Andrew Metrck Ayako Yasuda KAIST Yale School of Management Unversty of Calforna at Davs June 26, 2011 Abstract: Ths paper analyzes the economcs

More information

A Master Time Value of Money Formula. Floyd Vest

A Master Time Value of Money Formula. Floyd Vest A Master Tme Value of Money Formula Floyd Vest For Fnancal Functons on a calculator or computer, Master Tme Value of Money (TVM) Formulas are usually used for the Compound Interest Formula and for Annutes.

More information

Hollinger Canadian Publishing Holdings Co. ( HCPH ) proceeding under the Companies Creditors Arrangement Act ( CCAA )

Hollinger Canadian Publishing Holdings Co. ( HCPH ) proceeding under the Companies Creditors Arrangement Act ( CCAA ) February 17, 2011 Andrew J. Hatnay ahatnay@kmlaw.ca Dear Sr/Madam: Re: Re: Hollnger Canadan Publshng Holdngs Co. ( HCPH ) proceedng under the Companes Credtors Arrangement Act ( CCAA ) Update on CCAA Proceedngs

More information

Problem Set 3. a) We are asked how people will react, if the interest rate i on bonds is negative.

Problem Set 3. a) We are asked how people will react, if the interest rate i on bonds is negative. Queston roblem Set 3 a) We are asked how people wll react, f the nterest rate on bonds s negatve. When

More information

FINANCIAL MATHEMATICS

FINANCIAL MATHEMATICS 3 LESSON FINANCIAL MATHEMATICS Annutes What s an annuty? The term annuty s used n fnancal mathematcs to refer to any termnatng sequence of regular fxed payments over a specfed perod of tme. Loans are usually

More information

Traffic-light a stress test for life insurance provisions

Traffic-light a stress test for life insurance provisions MEMORANDUM Date 006-09-7 Authors Bengt von Bahr, Göran Ronge Traffc-lght a stress test for lfe nsurance provsons Fnansnspetonen P.O. Box 6750 SE-113 85 Stocholm [Sveavägen 167] Tel +46 8 787 80 00 Fax

More information

Texas Instruments 30Xa Calculator

Texas Instruments 30Xa Calculator Teas Instruments 30Xa Calculator Keystrokes for the TI-30Xa are shown for a few topcs n whch keystrokes are unque. Start by readng the Quk Start secton. Then, before begnnng a specfc unt of the tet, check

More information

Staff Paper. Farm Savings Accounts: Examining Income Variability, Eligibility, and Benefits. Brent Gloy, Eddy LaDue, and Charles Cuykendall

Staff Paper. Farm Savings Accounts: Examining Income Variability, Eligibility, and Benefits. Brent Gloy, Eddy LaDue, and Charles Cuykendall SP 2005-02 August 2005 Staff Paper Department of Appled Economcs and Management Cornell Unversty, Ithaca, New York 14853-7801 USA Farm Savngs Accounts: Examnng Income Varablty, Elgblty, and Benefts Brent

More information

Texas Instruments 30X IIS Calculator

Texas Instruments 30X IIS Calculator Texas Instruments 30X IIS Calculator Keystrokes for the TI-30X IIS are shown for a few topcs n whch keystrokes are unque. Start by readng the Quk Start secton. Then, before begnnng a specfc unt of the

More information

THE DISTRIBUTION OF LOAN PORTFOLIO VALUE * Oldrich Alfons Vasicek

THE DISTRIBUTION OF LOAN PORTFOLIO VALUE * Oldrich Alfons Vasicek HE DISRIBUION OF LOAN PORFOLIO VALUE * Oldrch Alfons Vascek he amount of captal necessary to support a portfolo of debt securtes depends on the probablty dstrbuton of the portfolo loss. Consder a portfolo

More information

Nordea G10 Alpha Carry Index

Nordea G10 Alpha Carry Index Nordea G10 Alpha Carry Index Index Rules v1.1 Verson as of 10/10/2013 1 (6) Page 1 Index Descrpton The G10 Alpha Carry Index, the Index, follows the development of a rule based strategy whch nvests and

More information

A) 3.1 B) 3.3 C) 3.5 D) 3.7 E) 3.9 Solution.

A) 3.1 B) 3.3 C) 3.5 D) 3.7 E) 3.9 Solution. ACTS 408 Instructor: Natala A. Humphreys SOLUTION TO HOMEWOR 4 Secton 7: Annutes whose payments follow a geometrc progresson. Secton 8: Annutes whose payments follow an arthmetc progresson. Problem Suppose

More information

The Cox-Ross-Rubinstein Option Pricing Model

The Cox-Ross-Rubinstein Option Pricing Model Fnance 400 A. Penat - G. Pennacc Te Cox-Ross-Rubnsten Opton Prcng Model Te prevous notes sowed tat te absence o arbtrage restrcts te prce o an opton n terms o ts underlyng asset. However, te no-arbtrage

More information

Interest Rate Fundamentals

Interest Rate Fundamentals Lecture Part II Interest Rate Fundamentals Topcs n Quanttatve Fnance: Inflaton Dervatves Instructor: Iraj Kan Fundamentals of Interest Rates In part II of ths lecture we wll consder fundamental concepts

More information

EXAMPLE PROBLEMS SOLVED USING THE SHARP EL-733A CALCULATOR

EXAMPLE PROBLEMS SOLVED USING THE SHARP EL-733A CALCULATOR EXAMPLE PROBLEMS SOLVED USING THE SHARP EL-733A CALCULATOR 8S CHAPTER 8 EXAMPLES EXAMPLE 8.4A THE INVESTMENT NEEDED TO REACH A PARTICULAR FUTURE VALUE What amount must you nvest now at 4% compoune monthly

More information

An Alternative Way to Measure Private Equity Performance

An Alternative Way to Measure Private Equity Performance An Alternatve Way to Measure Prvate Equty Performance Peter Todd Parlux Investment Technology LLC Summary Internal Rate of Return (IRR) s probably the most common way to measure the performance of prvate

More information

Analysis of Premium Liabilities for Australian Lines of Business

Analysis of Premium Liabilities for Australian Lines of Business Summary of Analyss of Premum Labltes for Australan Lnes of Busness Emly Tao Honours Research Paper, The Unversty of Melbourne Emly Tao Acknowledgements I am grateful to the Australan Prudental Regulaton

More information

Ameriprise Financial Services, Inc. or RiverSource Life Insurance Company Account Registration

Ameriprise Financial Services, Inc. or RiverSource Life Insurance Company Account Registration CED0105200808 Amerprse Fnancal Servces, Inc. 70400 Amerprse Fnancal Center Mnneapols, MN 55474 Incomng Account Transfer/Exchange/ Drect Rollover (Qualfed Plans Only) for Amerprse certfcates, Columba mutual

More information

Stress test for measuring insurance risks in non-life insurance

Stress test for measuring insurance risks in non-life insurance PROMEMORIA Datum June 01 Fnansnspektonen Författare Bengt von Bahr, Younes Elonq and Erk Elvers Stress test for measurng nsurance rsks n non-lfe nsurance Summary Ths memo descrbes stress testng of nsurance

More information

Guide to the Volatility Indices of Deutsche Börse

Guide to the Volatility Indices of Deutsche Börse Volatlty Indces of Deutsche Börse Verson.4 Volatlty Indces of Deutschen Börse Page General Informaton In order to ensure the hghest qualty of each of ts ndces, Deutsche Börse AG exercses the greatest care

More information

Answer: A). There is a flatter IS curve in the high MPC economy. Original LM LM after increase in M. IS curve for low MPC economy

Answer: A). There is a flatter IS curve in the high MPC economy. Original LM LM after increase in M. IS curve for low MPC economy 4.02 Quz Solutons Fall 2004 Multple-Choce Questons (30/00 ponts) Please, crcle the correct answer for each of the followng 0 multple-choce questons. For each queston, only one of the answers s correct.

More information

Assumptions: No transaction cost, same rate for borrowing/lending, no default/counterparty risk

Assumptions: No transaction cost, same rate for borrowing/lending, no default/counterparty risk Derivatives Why? Allow easier methods to short sell a stock without a broker lending it. Facilitates hedging easily Allows the ability to take long/short position on less available commodities (Rice, Cotton,

More information

FINANCIAL MATHEMATICS. A Practical Guide for Actuaries. and other Business Professionals

FINANCIAL MATHEMATICS. A Practical Guide for Actuaries. and other Business Professionals FINANCIAL MATHEMATICS A Practcal Gude for Actuares and other Busness Professonals Second Edton CHRIS RUCKMAN, FSA, MAAA JOE FRANCIS, FSA, MAAA, CFA Study Notes Prepared by Kevn Shand, FSA, FCIA Assstant

More information

S&P/CITIC CHINA BOND INDICES

S&P/CITIC CHINA BOND INDICES October 2006 S&P/CITIC CHINA BOND INDICES INDEX METHODOLOGY Table of Contents Introducton 3 Hghlghts 3 Partnershp 4 Index Famly 4 Elgblty Crtera 5 S&P/CITIC Government Bond Index 5 S&P/CITIC Corporate

More information

Reporting Forms ARF 113.0A, ARF 113.0B, ARF 113.0C and ARF 113.0D FIRB Corporate (including SME Corporate), Sovereign and Bank Instruction Guide

Reporting Forms ARF 113.0A, ARF 113.0B, ARF 113.0C and ARF 113.0D FIRB Corporate (including SME Corporate), Sovereign and Bank Instruction Guide Reportng Forms ARF 113.0A, ARF 113.0B, ARF 113.0C and ARF 113.0D FIRB Corporate (ncludng SME Corporate), Soveregn and Bank Instructon Gude Ths nstructon gude s desgned to assst n the completon of the FIRB

More information

DISCLOSURES I. ELECTRONIC FUND TRANSFER DISCLOSURE (REGULATION E)... 2 ELECTRONIC DISCLOSURE AND ELECTRONIC SIGNATURE CONSENT... 7

DISCLOSURES I. ELECTRONIC FUND TRANSFER DISCLOSURE (REGULATION E)... 2 ELECTRONIC DISCLOSURE AND ELECTRONIC SIGNATURE CONSENT... 7 DISCLOSURES The Dsclosures set forth below may affect the accounts you have selected wth Bank Leum USA. Read these dsclosures carefully as they descrbe your rghts and oblgatons for the accounts and/or

More information

In this chapter we will learn about. Treasury Notes and Bonds, Treasury Inflation Protected Securities,

In this chapter we will learn about. Treasury Notes and Bonds, Treasury Inflation Protected Securities, 2 Treasury Securities In this chapter we will learn about Treasury Bills, Treasury Notes and Bonds, Strips, Treasury Inflation Protected Securities, and a few other products including Eurodollar deposits.

More information

Hedging with Futures and Options: Supplementary Material. Global Financial Management

Hedging with Futures and Options: Supplementary Material. Global Financial Management Hedging with Futures and Options: Supplementary Material Global Financial Management Fuqua School of Business Duke University 1 Hedging Stock Market Risk: S&P500 Futures Contract A futures contract on

More information

Lecture 14: Implementing CAPM

Lecture 14: Implementing CAPM Lecture 14: Implementng CAPM Queston: So, how do I apply the CAPM? Current readng: Brealey and Myers, Chapter 9 Reader, Chapter 15 M. Spegel and R. Stanton, 2000 1 Key Results So Far All nvestors should

More information

Course outline. Financial Time Series Analysis. Overview. Data analysis. Predictive signal. Trading strategy

Course outline. Financial Time Series Analysis. Overview. Data analysis. Predictive signal. Trading strategy Fnancal Tme Seres Analyss Patrck McSharry patrck@mcsharry.net www.mcsharry.net Trnty Term 2014 Mathematcal Insttute Unversty of Oxford Course outlne 1. Data analyss, probablty, correlatons, vsualsaton

More information

3. Present value of Annuity Problems

3. Present value of Annuity Problems Mathematcs of Fnance The formulae 1. A = P(1 +.n) smple nterest 2. A = P(1 + ) n compound nterest formula 3. A = P(1-.n) deprecaton straght lne 4. A = P(1 ) n compound decrease dmshng balance 5. P = -

More information

YIELD CURVE FITTING 2.0 Constructing Bond and Money Market Yield Curves using Cubic B-Spline and Natural Cubic Spline Methodology.

YIELD CURVE FITTING 2.0 Constructing Bond and Money Market Yield Curves using Cubic B-Spline and Natural Cubic Spline Methodology. YIELD CURVE FITTING 2.0 Constructng Bond and Money Market Yeld Curves usng Cubc B-Splne and Natural Cubc Splne Methodology Users Manual YIELD CURVE FITTING 2.0 Users Manual Authors: Zhuosh Lu, Moorad Choudhry

More information

Evidence of the unspanned stochastic volatility in crude-oil market

Evidence of the unspanned stochastic volatility in crude-oil market The Academy of Economc Studes The Faculty of Fnance, Insurance, Bankng and Stock Echange Doctoral School of Fnance and Bankng (DOFIN) Dssertaton Paper Evdence of the unspanned stochastc volatlty n crude-ol

More information

Fixed Income Portfolio Management. Interest rate sensitivity, duration, and convexity

Fixed Income Portfolio Management. Interest rate sensitivity, duration, and convexity Fixed Income ortfolio Management Interest rate sensitivity, duration, and convexity assive bond portfolio management Active bond portfolio management Interest rate swaps 1 Interest rate sensitivity, duration,

More information

Return decomposing of absolute-performance multi-asset class portfolios. Working Paper - Nummer: 16

Return decomposing of absolute-performance multi-asset class portfolios. Working Paper - Nummer: 16 Return decomposng of absolute-performance mult-asset class portfolos Workng Paper - Nummer: 16 2007 by Dr. Stefan J. Illmer und Wolfgang Marty; n: Fnancal Markets and Portfolo Management; March 2007; Volume

More information

Loss analysis of a life insurance company applying discrete-time risk-minimizing hedging strategies

Loss analysis of a life insurance company applying discrete-time risk-minimizing hedging strategies Insurance: Mathematcs and Economcs 42 2008 1035 1049 www.elsever.com/locate/me Loss analyss of a lfe nsurance company applyng dscrete-tme rsk-mnmzng hedgng strateges An Chen Netspar, he Netherlands Department

More information

Multiple-Period Attribution: Residuals and Compounding

Multiple-Period Attribution: Residuals and Compounding Multple-Perod Attrbuton: Resduals and Compoundng Our revewer gave these authors full marks for dealng wth an ssue that performance measurers and vendors often regard as propretary nformaton. In 1994, Dens

More information

Exhibit 1. Swaps Correlate More Closely with Corporates than Treasuries Do

Exhibit 1. Swaps Correlate More Closely with Corporates than Treasuries Do CBOT Interest Rate wap Complex The Tools of Your Trade Hedging a Fixed-Income Portfolio with Swap Futures The addition of 5-year and 10-year interest rate swap futures to the CBOT interest rate futures

More information

The Choice of Direct Dealing or Electronic Brokerage in Foreign Exchange Trading

The Choice of Direct Dealing or Electronic Brokerage in Foreign Exchange Trading The Choce of Drect Dealng or Electronc Brokerage n Foregn Exchange Tradng Mchael Melvn Arzona State Unversty & Ln Wen Unversty of Redlands MARKET PARTICIPANTS: Customers End-users Multnatonal frms Central

More information

ANALYSIS OF FINANCIAL FLOWS

ANALYSIS OF FINANCIAL FLOWS ANALYSIS OF FINANCIAL FLOWS AND INVESTMENTS II 4 Annutes Only rarely wll one encounter an nvestment or loan where the underlyng fnancal arrangement s as smple as the lump sum, sngle cash flow problems

More information

Efficient Project Portfolio as a tool for Enterprise Risk Management

Efficient Project Portfolio as a tool for Enterprise Risk Management Effcent Proect Portfolo as a tool for Enterprse Rsk Management Valentn O. Nkonov Ural State Techncal Unversty Growth Traectory Consultng Company January 5, 27 Effcent Proect Portfolo as a tool for Enterprse

More information

IN THE UNITED STATES THIS REPORT IS AVAILABLE ONLY TO PERSONS WHO HAVE RECEIVED THE PROPER OPTION RISK DISCLOSURE DOCUMENTS.

IN THE UNITED STATES THIS REPORT IS AVAILABLE ONLY TO PERSONS WHO HAVE RECEIVED THE PROPER OPTION RISK DISCLOSURE DOCUMENTS. http://mm.pmorgan.com European Equty Dervatves Strategy 4 May 005 N THE UNTED STATES THS REPORT S AVALABLE ONLY TO PERSONS WHO HAVE RECEVED THE PROPER OPTON RS DSCLOSURE DOCUMENTS. Correlaton Vehcles Technques

More information

Fixed income risk attribution

Fixed income risk attribution 5 Fxed ncome rsk attrbuton Chthra Krshnamurth RskMetrcs Group chthra.krshnamurth@rskmetrcs.com We compare the rsk of the actve portfolo wth that of the benchmark and segment the dfference between the two

More information

Chapter 15 Debt and Taxes

Chapter 15 Debt and Taxes hapter 15 Debt and Taxes 15-1. Pelamed Pharmaceutcals has EBIT of $325 mllon n 2006. In addton, Pelamed has nterest expenses of $125 mllon and a corporate tax rate of 40%. a. What s Pelamed s 2006 net

More information

The Current Employment Statistics (CES) survey,

The Current Employment Statistics (CES) survey, Busness Brths and Deaths Impact of busness brths and deaths n the payroll survey The CES probablty-based sample redesgn accounts for most busness brth employment through the mputaton of busness deaths,

More information

The Role of Fixed Income Benchmarks. May 2007 Lev Dynkin, Managing Director Global Head of Quantitative Portfolio Strategies

The Role of Fixed Income Benchmarks. May 2007 Lev Dynkin, Managing Director Global Head of Quantitative Portfolio Strategies The Role of Fxed Income enchmarks May 2007 Lev Dynkn, Managng Drector Global Head of Quanttatve Portfolo Strateges Why use a benchmark? Is the portfolo manager addng value vs a nave ( zero skll ) nvestment

More information

Pricing and Strategy for Muni BMA Swaps

Pricing and Strategy for Muni BMA Swaps J.P. Morgan Management Municipal Strategy Note BMA Basis Swaps: Can be used to trade the relative value of Libor against short maturity tax exempt bonds. Imply future tax rates and can be used to take

More information

VALUATION OF PLAIN VANILLA INTEREST RATES SWAPS

VALUATION OF PLAIN VANILLA INTEREST RATES SWAPS Graduate School of Business Administration University of Virginia VALUATION OF PLAIN VANILLA INTEREST RATES SWAPS Interest-rate swaps have grown tremendously over the last 10 years. With this development,

More information

DB Global Short Maturity High Yield Bond Index

DB Global Short Maturity High Yield Bond Index 12 February 2015 DBIQ Index Gude DB Global Short Maturty Hgh Yeld Bond Index Summary The DB Global Short Maturty Hgh Yeld Bond Index ( Index ) tracks the performance of a selected basket of short term

More information

Small pots lump sum payment instruction

Small pots lump sum payment instruction For customers Small pots lump sum payment nstructon Please read these notes before completng ths nstructon About ths nstructon Use ths nstructon f you re an ndvdual wth Aegon Retrement Choces Self Invested

More information

A G E N E R A L I Z E D H Y B R I D F I X E D I N C O M E AT T R I - B U T I O N M O D E L

A G E N E R A L I Z E D H Y B R I D F I X E D I N C O M E AT T R I - B U T I O N M O D E L A N D R E W C O L I N A N D K ATA L I N K I S S A G E N E R A L I Z E D H Y B R I D F I X E D I N C O M E AT T R I - B U T I O N M O D E L F L A M E T R E E T E C H N O L O G I E S P T Y LT D Copyrght

More information

Learning Curve Interest Rate Futures Contracts Moorad Choudhry

Learning Curve Interest Rate Futures Contracts Moorad Choudhry Learning Curve Interest Rate Futures Contracts Moorad Choudhry YieldCurve.com 2004 Page 1 The market in short-term interest rate derivatives is a large and liquid one, and the instruments involved are

More information

Basel Committee on Banking Supervision

Basel Committee on Banking Supervision Basel Commttee on Banng Supervson The standardsed approach for measurng counterparty credt rs exposures March 014 (rev. Aprl 014) Ths publcaton s avalable on the BIS webste (www.bs.org). Ban for Internatonal

More information

The Short-term and Long-term Market

The Short-term and Long-term Market A Presentaton on Market Effcences to Northfeld Informaton Servces Annual Conference he Short-term and Long-term Market Effcences en Post Offce Square Boston, MA 0209 www.acadan-asset.com Charles H. Wang,

More information

ADVA FINAN QUAN ADVANCED FINANCE AND QUANTITATIVE INTERVIEWS VAULT GUIDE TO. Customized for: Jason (jason.barquero@cgu.edu) 2002 Vault Inc.

ADVA FINAN QUAN ADVANCED FINANCE AND QUANTITATIVE INTERVIEWS VAULT GUIDE TO. Customized for: Jason (jason.barquero@cgu.edu) 2002 Vault Inc. ADVA FINAN QUAN 00 Vault Inc. VAULT GUIDE TO ADVANCED FINANCE AND QUANTITATIVE INTERVIEWS Copyrght 00 by Vault Inc. All rghts reserved. All nformaton n ths book s subject to change wthout notce. Vault

More information

Module 2 LOSSLESS IMAGE COMPRESSION SYSTEMS. Version 2 ECE IIT, Kharagpur

Module 2 LOSSLESS IMAGE COMPRESSION SYSTEMS. Version 2 ECE IIT, Kharagpur Module LOSSLESS IMAGE COMPRESSION SYSTEMS Lesson 3 Lossless Compresson: Huffman Codng Instructonal Objectves At the end of ths lesson, the students should be able to:. Defne and measure source entropy..

More information

Lecture 12. Options Strategies

Lecture 12. Options Strategies Lecture 12. Options Strategies Introduction to Options Strategies Options, Futures, Derivatives 10/15/07 back to start 1 Solutions Problem 6:23: Assume that a bank can borrow or lend money at the same

More information

Measuring portfolio loss using approximation methods

Measuring portfolio loss using approximation methods Scence Journal of Appled Mathematcs and Statstcs 014; (): 4-5 Publshed onlne Aprl 0, 014 (http://www.scencepublshnggroup.com/j/sjams) do: 10.11648/j.sjams.01400.11 Measurng portfolo loss usng approxmaton

More information

NON-CONSTANT SUM RED-AND-BLACK GAMES WITH BET-DEPENDENT WIN PROBABILITY FUNCTION LAURA PONTIGGIA, University of the Sciences in Philadelphia

NON-CONSTANT SUM RED-AND-BLACK GAMES WITH BET-DEPENDENT WIN PROBABILITY FUNCTION LAURA PONTIGGIA, University of the Sciences in Philadelphia To appear n Journal o Appled Probablty June 2007 O-COSTAT SUM RED-AD-BLACK GAMES WITH BET-DEPEDET WI PROBABILITY FUCTIO LAURA POTIGGIA, Unversty o the Scences n Phladelpha Abstract In ths paper we nvestgate

More information

Construction Rules for Morningstar Canada Target Dividend Index SM

Construction Rules for Morningstar Canada Target Dividend Index SM Constructon Rules for Mornngstar Canada Target Dvdend Index SM Mornngstar Methodology Paper October 2014 Verson 1.2 2014 Mornngstar, Inc. All rghts reserved. The nformaton n ths document s the property

More information