Term Structure MGT 4850 Spring 2009 University of Lethbridge.

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Presentation transcript:

Term Structure MGT 4850 Spring 2009 University of Lethbridge

Interest Rate Term Structure

Bootstrapping method Uses available price data to calculate yield Uses available yield curve to calculate implied forward

Calculating the term structure Zero coupons and their prices Treasury notes Treasury bonds Bootstrapping coupon payments and bond prices

5 Pricing of Treasury Bonds To find the price of a bond, discount the cash flows of the bond at the appropriate spot rates:

Pricing of Swaps Implied forward rates Discount factors Solving for the fixed rate

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