Illustrative Example: Yield Curve – Forward Rates from Spot Rates

File Name: Yield Curve – Forward Rates from Spot Rates

Location: Modeling Toolkit | Yield Curve | Forward Rates from Spot Rates

Brief Description: This is a bootstrap model used to determine the implied forward rate given two spot rates

Requirements: Modeling Toolkit, Risk Simulator

Modeling Toolkit Function Used: MTForwardRate

Given two spot rates (from Year 0 to some future time periods), you can determine the implied forward rate between these two time periods. For instance, if the spot rate from Year 0 to Year 1 is 8%, and the spot rate from Year 0 to Year 2 is 7% (both yields are known currently), the implied forward rate from Year 1 to Year 2 (that will occur based on current expectations) is 6%. This is simplified by using the MTForwardRate function in Modeling Toolkit (Figure 2.34).

Figure 2.34: Forward Rate Extrapolation

DETAILED LIST OF ALL TOPICS

DESCRIPTIVE STATISTICS
- MEASURING THE CENTER OF THE DISTRIBUTION–THE FIRST MOMENT
- MEASURING THE SPREAD OF THE DISTRIBUTION–THE SECOND MOMENT
- MEASURING THE SKEW OF THE DISTRIBUTION–THE THIRD MOMENT
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BAYES’ THEOREM
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DISCRETE DISTRIBUTIONS
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QUANTITATIVE STATISTICAL METHODS AND DATA SCIENCE
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ARTIFICIAL INTELLIGENCE MACHINE LEARNING METHODS
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MONTE CARLO SIMULATION BASICS
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RISK SIMULATOR: OPTIMIZATION (THE SEARCH FOR THE OPTIMAL DECISION)
- WHAT IS AN OPTIMIZATION MODEL?
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REAL OPTIONS SLS APPLICATIONS
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REAL OPTIONS STRATEGIC CASE STUDIES – FRAMING THE OPTIONS
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TECHNICAL NOTES
- TECHNICAL NOTE 1: THE BASICS OF INTERPRETING PDF, CDF, AND ICDF
- TECHNICAL NOTE 2: CONVOLUTION AND COPULAS—THEORY VERSUS PRACTICE
- TECHNICAL NOTE 3: CONVOLUTION OF MULTIPLICATION OF FREQUENCY AND SEVERITY DISTRIBUTIONS IN OPERATIONAL RISK CAPITAL MODEL IN BASEL III/IV
- TECHNICAL NOTE 4: PARETO CHARTS AND SENSITIVITY CHARTS
- TECHNICAL NOTE 5: DISTRIBUTION CHARTS AND TABLES USING THE PROBABILITY DISTRIBUTION TOOL
- TECHNICAL NOTE 6: PERCENTILE DISTRIBUTIONAL FITTING TOOL
- TECHNICAL NOTE 7: DYNAMIC PROJECT MANAGEMENT WITH COST AND SCHEDULE RISK
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- Yield Curve – Term Structure of Volatility
- Yield Curve – U.S. Treasury Risk-free Rates and Cubic Spline Curves
- Yield Curve – Vasicek Model