Diagrams for various forward/yield curves in FRM syllabus

blackjack21
Good Student
Posts: 20
Joined: Thu May 03, 2012 9:56 pm

Diagrams for various forward/yield curves in FRM syllabus

Postby blackjack21 » Wed May 09, 2012 10:06 am

Hi

I know this might be a silly thing to ask but could you tell me a source from where I could get an intuitive feel about the various forward curves being talked about in the level 1 syllabus.

For instance, while reading the hedging strategies I read in stack hedging
"If the forward curve is steeper....if the fwd curve is flat...."

Similarly a statement like short term yield is flat does not go down too well with me. I am assuming that a diagrammatic repn of the curves could give me a better insight into wht this is all abt

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content.pristine
Finance Junkie
Posts: 356
Joined: Wed Apr 11, 2012 11:26 am

Re: Diagrams for various forward/yield curves in FRM syllabu

Postby content.pristine » Fri May 11, 2012 8:16 pm

Hi Blackjack,

Well, 3 curves come to mind:
1) Forward (for forward rates)
2) Spot (yields on zero coupon)
3) Yield (yield vs maturity for regular coupon bonds)

The forward curve is a function of the curve for the underlying. If the underlying is upward sloping then the forward would also be upward sloping. If the underlying is flat, then the forward curve would also be flat.

When you say that short term yields are flat, that means that all short term maturities have the same yield. For example, overnight, 1 month, 3 month, 6 month, 1 year 2 years might all have the same YTM being 3%.

Hope this helps 8-)

content.pristine
Finance Junkie
Posts: 356
Joined: Wed Apr 11, 2012 11:26 am

Re: Diagrams for various forward/yield curves in FRM syllabu

Postby content.pristine » Sat May 12, 2012 10:09 pm

One of our instructors, Pradeep, had something to add to the discussion:

"On Diagrams of various yield curves:
you can refer to various sites on the internet which provide you with the forward quotes ...one such site I came across is http://www.fxstreet.com/rates-charts/fo ... =aud%2fusd
pls remember that the rates quoted in many of the sites are forward premia or discount to the spot rate...and the rates will typically be quoted in pips (.0001)...you can get the diagrammatic representation for all these rates using excel sheet....take the current spot rate add the pips to it and the forward rates can be arrived at....
one more good site about swap rates is http://www.swap-rates.com/UKSwap_extended.html this talks about the UK market predominantly...."


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