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Tree returning the OAS (black vs red): the short rate is the top value; the development of the bond value shows pull-to-par clearly . A short-rate model, in the context of interest rate derivatives, is a mathematical model that describes the future evolution of interest rates by describing the future evolution of the short rate, usually written .
Short rate may refer to: Short rate cancellation (insurance), a penalty method of calculating return premium of an insurance policy; Short rate table, used to calculate the earned premium for such a policy; Short-rate model (interest), a mathematical model that describes the future evolution of interest rates by describing the future evolution ...
Roughly US$110 billion in short-term loans were advanced to Indonesia, South Korea and Thailand to help them stabilize their economies. The IMF imposed conditionality requirement by increasing taxes and interests rates combined with cutting government spending resulted in most countries recovering by 1999.
In financial mathematics, the Ho-Lee model is a short-rate model widely used in the pricing of bond options, swaptions and other interest rate derivatives, and in modeling future interest rates. [1]: 381 It was developed in 1986 by Thomas Ho [2] and Sang Bin Lee. [3] Under this model, the short rate follows a normal process:
The initial lattice is built by discretizing either a short-rate model, such as Hull–White or Black Derman Toy, or a forward rate-based model, such as the LIBOR market model or HJM. As for equity, trinomial trees may also be employed for these models; [ 26 ] this is usually the case for Hull-White trees.
A trajectory of the short rate and the corresponding yield curves at T=0 (purple) and two later points in time. In finance, the Vasicek model is a mathematical model describing the evolution of interest rates. It is a type of one-factor short-rate model as it describes interest rate movements as driven by only one source of market risk.
Numerous articles relate to short-term interest rates, including: . Bank rate; Certificate of deposit; Discount window; Eurodollar; Federal funds rate; Libor; Official bank rate of the United Kingdom
The risk-free rate is also a required input in financial calculations, such as the Black–Scholes formula for pricing stock options and the Sharpe ratio. Note that some finance and economic theories assume that market participants can borrow at the risk-free rate; in practice, very few (if any) borrowers have access to finance at the risk free ...