forward-rate-agreement

Learning objectives: Derive forward interest rates from a set of spot rates. Derive the value of the cash flows from a forward rate agreement (FRA). Calculate zero-coupon rates using the bootstrap method. Compare and contrast the major theories of the term structure of interest rates...

Learning objectives: Summarize how to map a fixed-income portfolio into positions of standard instruments. Describe how mapping of risk factors can support stress testing. Explain how VaR can be computed and used relative to a performance benchmark. Describe the method of mapping forwards...

The seller of in a forward rate agreement (FRA) is planning to lend in the future and hedges by "locking" in the FRA's fixed rate, so that if rates decrease, this seller receives a cash settlement. David's XLS is here: https://www.dropbox.com/s/75psfdv2sdne3s1/042518-fra-hedge.xlsx?st=dtrvv2xd&dl=0

A forward rate agreement (FRA) is a loan that starts in the future ("forward start loan") but where principal is not lent; instead, the notional is referenced to determine the interest paid. The FRA contract specifies a fixed rate of interest. The seller (buyer) is lending (borrowing) at the...

Learning objective: Describe the method of mapping forwards, forward rate agreements, interest rate swaps, and options. Questions: 717.1. A portfolio manager evaluates the risk of the following two-bond portfolio: We assume that specific risk is negligible and that the volatility of...

Learning objectives: Calculate the theoretical price of a bond using spot rates. Derive forward interest rates from a set of spot rates. Derive the value of the cash flows from a forward rate agreement (FRA). Questions: 713.1. Consider the steep spot (aka, zero) rate curve illustrated below...