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by DavidJN
September 25th, 2002, 8:32 pm
Forum: Student Forum
Topic: Interest Rate Options
Replies: 6
Views: 189970

Interest Rate Options

<t>Most practitioners do use the Black model to price vanilla caps/floors and swaptions. The fact that we need to use different volatilities to price caps and swaptions with different maturities is a pretty good indication that the model is not particularly robust when it comes to interest rate opti...
by DavidJN
September 25th, 2002, 2:17 pm
Forum: Technical Forum
Topic: the estimation of interest rate term structure
Replies: 24
Views: 192935

the estimation of interest rate term structure

<t>A number of contributors to this thread may be mixing up two related, but decidedly different concepts. The first concept (which was the starting point of this thread) is how to create the zero curve in the first place. The second is how to use it (i.e. how to interpolate it) once you have create...
by DavidJN
September 18th, 2002, 1:17 pm
Forum: Technical Forum
Topic: the estimation of interest rate term structure
Replies: 24
Views: 192935

the estimation of interest rate term structure

<t>A Bootstrap model is arbitrage-free in the sense that, if correctly implemented, it will reproduce the prices of the bonds used in the Bootstrap exactly. On the other hand, a bootstrap can produce fairly jagged zero curves. The MacCulloch spline model uses an error minimization criterion to best ...
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