Spot, Forward, and Futures Libor Rates

Models of Forward LIBOR and Swap Rates

The backward induction approach is systematically used to produce various models of forward market rates. These include the lognormal model of forward LIBOR rates examined in Miltersen et al. (1997) and Brace et al. (1997), as well as the lognormal model of ((xed-maturity) forward swap rates proposed by Jamshidian (1996, 1997). The valuation formulae for European caps and swaptions are given. I...

A Comparison of Yields On Futures Contraets and Implied Forward Rates

~t1JNCE the introduction of futures trading in 3-month Treasury bills in 1976, yields on these futures contracts have been examined for clues as to market expectations of the future course of interest rates. Although there are difficulties in isolating these expectations, the yields on futures contracts do embody information about market expectations of future interest rates.’ However, similar ...

Scheduled Announcements and Volatility Patterns: The Effects of Monetary Policy Committee Announcements on LIBOR and Short Sterling Futures and Options

Both the UK spot and futures markets in short term interest rates are found to react strongly to surprises in the scheduled announcements of the repo rate and RPI. Therefore these announcements should also affect the market for options on short term interest rates. Because the repo rate and RPI announcements are scheduled, the options market can predict the days on which announcement shocks may...

Another Look at the Forward-futures Price Differential in Libor Markets

The LIBOR Market Model Calibration with Separated Approach

From an economic perspective, interest rates constitute key tools for decision making in the financial sector as they have micro and macro impacts, making its risk management a crucial matter. The LIBOR Market Model (LMM) uses the yield curve of the British interbank rate LIBOR (forward) as its basic input. Unlike models that use instantaneous rates, those involved in the LMM are observable in ...