Search results
Results from the WOW.Com Content Network
The expectations hypothesis of the term structure of interest rates (whose graphical representation is known as the yield curve) is the proposition that the long-term rate is determined purely by current and future expected short-term rates, in such a way that the expected final value of wealth from investing in a sequence of short-term bonds equals the final value of wealth from investing in ...
Because of the term premium, long-term bond yields tend to be higher than short-term yields and the yield curve slopes upward. Long-term yields are also higher not just because of the liquidity premium, but also because of the risk premium added by the risk of default from holding a security over the long term.
An affine term structure model is a financial model that relates zero-coupon bond prices (i.e. the discount curve) to a spot rate model. It is particularly useful for deriving the yield curve – the process of determining spot rate model inputs from observable bond market data.
Here, the term structure of spot returns is recovered from the bond yields by solving for them recursively, by forward substitution: this iterative process is called the bootstrap method. The usefulness of bootstrapping is that using only a few carefully selected zero-coupon products, it becomes possible to derive par swap rates (forward and ...
John Hull and Alan White, "Numerical procedures for implementing term structure models II," Journal of Derivatives, Winter 1994, pp. 37–48. John Hull and Alan White, "The pricing of options on interest rate caps and floors using the Hull–White model" in Advanced Strategies in Financial Risk Management , Chapter 4, pp. 59–67.
Compared to a longer-term bond, a short-term bond will typically offer a lower interest rate when all other factors are equal. Short-term vs. long-term bonds: Key differences
In finance, a bond is a type of security under which the issuer owes the holder a debt, and is obliged – depending on the terms – to provide cash flow to the creditor (e.g. repay the principal (i.e. amount borrowed) of the bond at the maturity date and interest (called the coupon) over a specified amount of time. [1])
Government bonds: When you purchase a ... and are best for long-term investors seeking steady income through dividends. Options include: Consumer staples: ... Due to their structure, REITs must ...