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A non-option financial instrument that has embedded optionality, such as an interest rate cap, can also have an implied volatility. Implied volatility, a forward-looking and subjective measure, differs from historical volatility because the latter is calculated from known past returns of a security.
Market conditions: Major economic events — such as interest rate changes, unemployment data, market crashes or geopolitical tensions — can impact market volatility and, consequently, implied ...
Each forward rate is modeled by a lognormal process under its forward measure, i.e. a Black model leading to a Black formula for interest rate caps. This formula is the market standard to quote cap prices in terms of implied volatilities, hence the term "market model".
It is worth noting that the normal SABR implied volatility is generally somewhat more accurate than the lognormal implied volatility. The approximation accuracy and the degree of arbitrage can be further improved if the equivalent volatility under the CEV model with the same β {\displaystyle \beta } is used for pricing options.
Interest rate changes are among the only means that the federal government has to control the U.S. economy. Typically, the Federal Reserve raises interest rates to help lower prices during a time ...
To determine the cheapest bond in a basket of deliverable bonds against a futures contract, implied repo rate is computed for each bond; the bond with the highest repo rate is the cheapest. It is the cheapest because it has the lowest initial value to yield a higher return provided it is delivered with the stated futures price.
Simple interest vs. compound interest Simple interest refers to the interest you earn on your principal balance only. Let's say you invest $10,000 into an account that pays 3% in simple interest.
Country or currency union Central bank interest rate (%) Change Effective date of last change Average inflation rate 2017–2021 (%) by WB and IMF [1] [2] as in the List Central bank interest rate