Mastering Python for Finance - Second Edition

Spot and zero rates

As the compounding frequency increases (say, from compounded yearly to compounded daily), the future value of money reaches an exponential limit. That is to say, the value of $100 today will reach a future value of $100e^RT when it is invested at a continuously compounded rate, R, for a period of time, T. If we discount these values for a security that pays $100 at a future time, T, with a continuously-compounded discount rate, R, its value at time zero is . This rate is known as the spot rate.

Spot rates represent the current interest rates for several maturities, should we want to borrow or lend money now. Zero rates represent ...