AN EMPIRICAL INVESTIGATION OF THE FORWARD INTEREST RATE TERM STRUCTURE

Andrew Matacz () and Jean-Philippe Bouchaud ()
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Andrew Matacz: Science and Finance, 109-111 rue Victor Hugo, 92532 Levallois, France
Jean-Philippe Bouchaud: Science and Finance, 109-111 rue Victor Hugo, 92532 Levallois, France;

International Journal of Theoretical and Applied Finance (IJTAF), 2000, vol. 03, issue 04, 703-729

Abstract: In this paper we study empirically the Forward Rate Curve (FRC) of 5 different currencies. We confirm and extend the findings of a previous investigation of the U.S. FRC. 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.

Keywords: Interest rate modelling; interest rate options; interest rate derivatives (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (18)

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DOI: 10.1142/S0219024900000838

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