lecture8 (1)

lecture8 (1) - Lecture 8: Interest Rates Steven Skiena...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Lecture 8: Interest Rates Steven Skiena Department of Computer Science State University of New York Stony Brook, NY 11794–4400 http://www.cs.sunysb.edu/ skiena
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Interest Rates The current “risk-free” interest rate r is a fundamental parameter to pricing financial securities. However, it should be clear that there are many different interest rates, differing according to: The national currency. The duration of the loan. The credit worthiness of borrower. The backing collateral provided. The intended use of the money.
Background image of page 2
The Risk-Free Rate Treasury rates are the interest rates earned on loans (bonds/bills) to a government in its own currency. Since governments can print their own money, there is little chance they can default, hence risk-free. The London Interbank Offered Rate (LIBOR) is the interest rate which large AA-rated banks get on deposits from one to the other. These loans are close to risk-free, and are considered a better proxy to the true risk-free rate by derivatives traders.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
The Yield Curve The yield curve defines the relationship between interest rates and their maturities. Usually interest rates increase with maturity, reflecting
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 01/02/2012 for the course FINANCE 347 taught by Professor Bayou during the Fall '11 term at NYU.

Page1 / 13

lecture8 (1) - Lecture 8: Interest Rates Steven Skiena...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online