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Postby nivethasridhar3 » Mon Apr 25, 2016 9:36 am

While explaining valuation of swaps,

We equate value of fixed bond for the floating at initiation.

This fixed interest bond is discounted using r1, r2,r3,r4 that you get from "yield curve".

What is the difference between yield curve and spot curve?

Spot rate is for zero coupon bond's discounting factor, yes. So r1,r2,r3,r4 should be those right?

From level 1, we know YTM is in fact a derived number, we have bond prices trending in market using which we "impute/compute" YTM using prevailing spot rates, isn't it? Then what is the yield curve referred to in the discussion?


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Re: Derivatives

Postby edupristine » Sat May 07, 2016 6:52 am

Hi Nivethasridhar

spot rate is the rate for a zero coupon bond (basically for a loan with a balloon repayment).
Yield (short for yield to maturity - is a complex combination of spot rates depending on the number of CFs on the bond). yield is what you can get from investments.
Both are generally used for treasury.

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