An Empirical Investigation of the Forward Interest Rate Term Structure
Condensed Matter
2007-05-23 v1
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.
Keywords
Cite
@article{arxiv.cond-mat/9907297,
title = {An Empirical Investigation of the Forward Interest Rate Term Structure},
author = {Andrew Matacz and Jean-Philippe Bouchaud},
journal= {arXiv preprint arXiv:cond-mat/9907297},
year = {2007}
}
Comments
34 pages, Latex + 17 EPS figures