An empirical investigation of the forward interest rate term structure

Andrew Matacz and Jean-Philippe Bouchaud
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Andrew Matacz: Science & Finance, Capital Fund Management
Jean-Philippe Bouchaud: Science & Finance, Capital Fund Management

No 500047, Science & Finance (CFM) working paper archive from Science & Finance, Capital Fund Management

Abstract: In this paper we study empirically the Forward Rate Curve (FRC) of 5 different currencies. We confirm and extend the findings of our previous investigation of the U.S. Forward Rate Curve. In particular, the average FRC follows a square-root law, with a prefactor related to the spot volatility, suggesting a Value-at-Risk like pricing. We find a striking correlation between the instantaneous FRC and the past spot trend over a certain time horizon, in agreement with the idea of an extrapolated trend effect. We present a model which can be adequately calibrated to account for these effects.

JEL-codes: G10 (search for similar items in EconPapers)
Date: 1999-07
New Economics Papers: this item is included in nep-fin and nep-mon
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Citations: View citations in EconPapers (5)

Forthcoming in International Journal of Theoretical and Applied Finance

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Persistent link: https://EconPapers.repec.org/RePEc:sfi:sfiwpa:500047

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