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Derivatives and Risk Management, 1st Edition
book

Derivatives and Risk Management, 1st Edition

by Sundaram Janakiramanan
May 2024
Intermediate to advanced content levelIntermediate to advanced
542 pages
27h 26m
English
Pearson India
Content preview from Derivatives and Risk Management, 1st Edition
Interest Rates 43
P R O B L E M 3 . 1 3
Consider the following yield curve of zero-coupon instruments:
Term Yield (per cent)
6 months 7.5
12 months 7.9
2 years 8.4
3 years 8.7
Calculate the 6-month continuously compounded forward rates for periods starting six months hence.
Solution to Problem 3.13
e 6-month forward rate six months from today is calculated as:
t m
m t
f
r m r t
m t
=
0 0
( ) ( )
=
0 1 0 0 5
1 0 5
1 0 5
r r( ) ( . )
.
.
=
0 079 1 0 075 0 5
1 0 5
. . .
.
× ×
= 8.3%
3.8.2 Why Implied Forward Rates?
In a forward contract, we try to x the price of an asset to be traded in the future at the current time.
However, at the current time, we
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Publisher Resources

ISBN: 9781299447547Publisher Website