Spot interest rate

Spot interest rate

Interest rate fixed today on a loan that is made today. Related: Forward interest rates.

Spot Interest Rate

The interest rate for loans and debt securities issued at a given time. The advantage of borrowing at the spot interest rate is the fact that it is a known quantity and one can amortize the loan accordingly. The risk of the spot interest rate is that interest rates may rise or fall in the future to the disadvantage of one of the parties to a contract. Some investors speculate on the difference between a spot interest rate and a forward interest rate.
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By arbitrage this riskless payoff should equal the payoff to investing the cost of the commodity in a riskless bond, i.e., the spot interest rate for maturity [tau], [Y.sub.t]([tau]):
"Regardless of current spot interest rate levels, we recommend that frozen pension plan sponsors engage in analyzing their pension risk transfer options and costs as part of an overall pension risk management strategy."
Exploiting this condition, Vasicek obtains a bond pricing formula that expresses the price of bonds of various maturities as a function of the spot interest rate, the market price of risk, and other model parameters.
Furthermore, our study extends Amin and Morton (1994) and Klassen, Dressien and Pelsser (1999) by considering that the volatility structure depends on the level of the spot interest rate.
Having analyzed the length of the relationship between lagged forward rates and the spot interest rate, we can explore the direction of the influence on the relationship between the Treasury and swap yield curves.
The interest rate with the shortest maturity is commonly called the spot interest rate, r.
as to eliminate any arbitrage profit with spot interest rates. Pricing
Caption: Figure 5: Swiss Government Bonds: Spot interest rates in percent.
A term structure of spot interest rates and their component forward interest rates contain the same information, but expressing rates in forward terms provides a clearer view of the impact of different factors at different horizons.
The data set used in the estimations is composed by the monthly spot interest rates and the corresponding instantaneous forward rates of the McCulloch U.S.
The term structure of interest rates or zero-coupon yield curve characterizes relation between spot interest rates in the economy and the term to maturity of default-free fixed income securities in the market.
In this paper, we study the dynamic relationship of interest rate based-survey forecasts and spot interest rates. Our results suggest that these market expectations contain useful information regarding the future evolution of interest rates and also that they may be used to gauge Central Bank credibility.