Spot instruments

This chapter deals with spot instruments other than stocks: given the large amount of quantitative material about stocks they are treated separately, in the next chapter.


With respect to quantitative aspects and calculations, there is almost nothing to add for short-term rates instruments beyond what we considered in Chapter 1 (among others, the calculations relative to present and future values). But we should mention that some of the short-term instruments are generally traded in prices, on a “discount basis”, namely in PV prices (e.g., Treasury bills, banker's acceptances and commercial paper), while others are traded in rates, “on a yield basis”, that is, in interest percentage (i.e., repo rates, certificates of deposits, bank deposits, interbank rates, etc.).

Short-Term Rates Traded on a Discount Basis

For US T-bills, quoted in PV prices corresponding to a FV as par value of 100 at maturity, to compute the corresponding yield z the US Treasury uses a formula slightly different from the conventional Eq. 1.2 of Chapter 1, as follows:

Unnumbered Display Equation

on an ACT/360 basis. Let us take, for example, the 180-days US T-bill as traded on 01/04/08, @ 98.39: for t = 180/360 = 0.5, it corresponds to a yield of

Unnumbered Display Equation

Using Eq. 1.2,

we would have obtained

Short-Term Rates ...

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