Question
Using daily USD/ series in the file Assignment_2_DATA.xlsx, compute the arbitrage free 1, 3, and 6 month forward rates. NOTE that interest rates are quoted
Using daily USD/ series in the file Assignment_2_DATA.xlsx, compute the arbitrage free 1, 3, and 6 month forward rates. NOTE that interest rates are quoted as annualized rates (e.g. the applicable one month rate would be annualized one month rate * 30/360). Plot the percentage deviations of actual forward rates from theoretical values. When do you see the largest deviations? Why?
SHOW ALL CALCULATIONS IN EXCEL
| Date | Spot | F 1M | F 3M | F 6M | i_UK 1M | i_UK 3M | i_UK 6M | i_US 1M | i_US 3M | i_US 6M |
| 1986-01-02 | 1.4505 | 1.4393 | 1.4303 | 1.418 | 11.750% | 11.875% | 11.875% | 8.125% | 8.000% | 8.000% |
| 1986-01-03 | 1.438 | 1.4355 | 1.4268 | 1.4142 | 11.813% | 11.875% | 11.875% | 8.125% | 8.063% | 8.063% |
| 1986-01-06 | 1.4355 | 1.4373 | 1.4287 | 1.4159 | 11.750% | 11.906% | 11.938% | 8.188% | 8.125% | 8.125% |
| 1986-01-07 | 1.4395 | 1.436 | 1.4267 | 1.4125 | 11.750% | 12.031% | 12.063% | 8.125% | 8.125% | 8.125% |
| 1986-01-08 | 1.4433 | 1.439 | 1.4287 | 1.4146 | 12.250% | 12.500% | 12.500% | 8.000% | 8.000% | 8.000% |
| 1986-01-09 | 1.45 | 1.4392 | 1.4284 | 1.4143 | 12.875% | 12.938% | 12.875% | 8.188% | 8.188% | 8.188% |
| 1986-01-10 | 1.4545 | 1.4522 | 1.442 | 1.428 | 12.750% | 12.875% | 12.688% | 8.250% | 8.250% | 8.250% |
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Victorian Literature And Finance
Authors: Francis O'Gorman
1st Edition
0199281920, 978-0199281923
