Forward yield - Revision history

imported>Doug Williamson: Links ordering.

2022-07-01T20:33:14Z

Links ordering.

← Older revision		Revision as of 20:33, 1 July 2022
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	== See also ==		== See also ==
	* [[~~Yield curve~~]]		* [[Converting from forward rates]]
	* [[~~Zero coupon yield]]~~		* [[Coupon]]
	* [[Par yield]]
	* [[Forward rate agreement]]
	* [[Periodic yield]]
	* [[Discount factor]]		* [[Discount factor]]
	* [[~~Coupon~~]]		* [[Falling yield curve]]
	* [[Flat yield curve]]		* [[Flat yield curve]]
	* [[~~Rising yield curve]]~~		* [[Forward rate agreement]]
	* [[Falling yield curve]]
	* [[Positive yield curve]]
	* [[Negative yield curve]]		* [[Negative yield curve]]
			* [[No arbitrage conditions]]
	* [[Nominal annual rate]]		* [[Nominal annual rate]]
	* [[~~Converting from forward rates~~]]		* [[Par yield]]
			* [[Periodic yield]]
			* [[Positive yield curve]]
			* [[Rising yield curve]]
			* [[Yield curve]]
			* [[Zero coupon yield]]

	[[Category:Corporate_financial_management]]		[[Category:Corporate_financial_management]]
	[[Category:Manage_risks]]		[[Category:Manage_risks]]

imported>Doug Williamson: Categorise.

2018-02-21T11:53:03Z

Categorise.

← Older revision		Revision as of 11:53, 21 February 2018
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	* [[Nominal annual rate]]		* [[Nominal annual rate]]
	* [[Converting from forward rates]]		* [[Converting from forward rates]]

			[[Category:Corporate_financial_management]]
			[[Category:Manage_risks]]

imported>Doug Williamson: Expand.

2016-06-03T09:18:04Z

Expand.

← Older revision		Revision as of 09:18, 3 June 2016
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	===<span style="color:#4B0082">Example</span>===		===<span style="color:#4B0082">Example</span>===

	Taking a simpler example, the forward rate (or forward yield) for the maturity 2-3 periods is 3% per period.		Taking a simpler example, say the forward rate (or forward yield) for the maturity 2-3 periods is 3% per period.


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	£1,000,000 x 1.03		£1,000,000 x 1.03

	= £1,030,000 at Time 3 periods.		= £1,030,000 at Time 3 (periods into the future).

imported>Doug Williamson: Extend initial illustration and explanation of forward forward rates.

2015-11-26T09:54:50Z

Extend initial illustration and explanation of forward forward rates.

← Older revision		Revision as of 09:54, 26 November 2015
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	The commitment can relate to a physical deposit or borrowing, or - more commonly - a derivative contract to be settled by reference to a notional deposit or borrowing.		The commitment can relate to a physical deposit or borrowing, or - more commonly - a derivative contract to be settled by reference to a notional deposit or borrowing.

			For example a forward rate might be quoted for a [[forward rate agreement]] for the maturity 2-5 months in the future.


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	===<span style="color:#4B0082">Example</span>===		===<span style="color:#4B0082">Example</span>===

	~~The~~ forward yield for the maturity 2-3 periods is 3% per period.		Taking a simpler example, the forward rate (or forward yield) for the maturity 2-3 periods is 3% per period.

	~~This could be expressed as 2-3: 3.0000%~~.


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	= £1,030,000 at Time 3 periods.		= £1,030,000 at Time 3 periods.


			===Applications===

	A common application of forward yields is the pricing of forward rate agreements.		A common application of forward yields is the pricing of forward rate agreements.
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	The forward yield is also known as the [[Forward rate]] or (sometimes) the Forward forward rate.		The forward yield is also known as the [[Forward rate]] or (sometimes) the Forward forward rate.

	(The [[forward forward rate]] is technically slightly different.)		(The [[forward forward rate]] is technically slightly different, strictly referring to physical borrowings or deposits, rather than to derivative contracts.)


	===Quotation basis===		===Quotation basis===

	Rates are generally quoted as [[nominal annual rate]]s.		Rates are generally quoted in wholesale markets as [[nominal annual rate]]s.

imported>Doug Williamson: Promote See also header type.

2015-11-26T09:43:34Z

Promote See also header type.

← Older revision		Revision as of 09:43, 26 November 2015
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	=== See also ===		== See also ==
	* [[Yield curve]]		* [[Yield curve]]
	* [[Zero coupon yield]]		* [[Zero coupon yield]]

imported>Doug Williamson: Use Wiki heading for example.

2015-11-25T13:45:25Z

Use Wiki heading for example.

← Older revision		Revision as of 13:45, 25 November 2015
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	<span style="color:#4B0082">~~'''~~Example~~'''~~</span>
			===<span style="color:#4B0082">Example</span>===

	The forward yield for the maturity 2-3 periods is 3% per period.		The forward yield for the maturity 2-3 periods is 3% per period.

imported>Doug Williamson: Amend to Wiki headings.

2015-11-25T12:50:30Z

Amend to Wiki headings.

← Older revision		Revision as of 12:50, 25 November 2015
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	~~'''~~Quotation basis~~'''~~		===Quotation basis===

	Rates are generally quoted as [[nominal annual rate]]s.		Rates are generally quoted as [[nominal annual rate]]s.


	~~'''~~Conversion~~'''~~		===Conversion===

	If we know the forward yield, we can calculate both the [[zero coupon yield]] and the [[par yield]] for the same maturities and risk class.		If we know the forward yield, we can calculate both the [[zero coupon yield]] and the [[par yield]] for the same maturities and risk class.
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	~~'''~~Notation~~'''~~		===Notation===

	Notation varies between practitioners and contexts.		Notation varies between practitioners and contexts.
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	== See also ==		=== See also ===
	* [[Yield curve]]		* [[Yield curve]]
	* [[Zero coupon yield]]		* [[Zero coupon yield]]

imported>Doug Williamson: Expand following Jon Jeffery's email of 23 November 2015.

2015-11-25T12:47:12Z

Expand following Jon Jeffery's email of 23 November 2015.

← Older revision		Revision as of 12:47, 25 November 2015
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	The rate ~~of return~~ in the market today for ~~a notional or actual deposit~~ or borrowing:		The fixed interest rate in the market today for an investment or borrowing commitment:
	#Starting at a fixed future date; and		#Starting at a fixed future date; and
	#Ending on a later fixed future date.		#Ending on a later fixed future date.


			The commitment can relate to a physical deposit or borrowing, or - more commonly - a derivative contract to be settled by reference to a notional deposit or borrowing.


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	The forward yield for the maturity 2-3 periods is 3% per period.		The forward yield for the maturity 2-3 periods is 3% per period.

	This is the ~~rate payable for period~~ 3 ~~only - a single period - which~~ is ~~pre-agreed~~ today, 2 periods ~~before~~ the ~~deposit~~ or borrowing is ~~contracted to change hands~~.		This could be expressed as 2-3: 3.0000%.


			2 is the time from today (into the future) when the investment or borrowing will start.

			3 is the time from today when the investment or borrowing will end.


			The difference between Time 3 periods and Time 2 periods is the length of the investment or borrowing.

			In this case the length of the investment or borrowing is 3 - 2 = 1 period.



	This means ~~that~~ a mutually binding agreement can be made today, for a deposit of £1,000,000 to be made at Time 2 periods into the future, which will return:		Assuming a deposit, 3% is the rate payable for period 3 only - a single period - which is pre-agreed today, 2 periods before the deposit is contracted to change hands.

			This means a mutually binding agreement can be made today, for a deposit of £1,000,000 to be made at Time 2 periods into the future, which will return:

	£1,000,000 x 1.03		£1,000,000 x 1.03
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	(The [[forward forward rate]] is technically slightly different.)		(The [[forward forward rate]] is technically slightly different.)


			'''Quotation basis'''

			Rates are generally quoted as [[nominal annual rate]]s.


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	* [[Positive yield curve]]		* [[Positive yield curve]]
	* [[Negative yield curve]]		* [[Negative yield curve]]
			* [[Nominal annual rate]]
	* [[Converting from forward rates]]		* [[Converting from forward rates]]

imported>Doug Williamson: Expand examples of forward rates and their notation.

2015-11-21T17:24:00Z

Expand examples of forward rates and their notation.

← Older revision		Revision as of 17:24, 21 November 2015
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	f<sub>1-2</sub>: the rate per period for the maturity starting one period in the future, and ending two periods in the future.		f<sub>1-2</sub>: the rate per period for the maturity starting one period in the future, and ending two periods in the future.

			f<sub>2-3</sub>: the rate per period for the maturity starting two periods in the future, and ending three periods in the future.

			f<sub>1-3</sub>: the rate per period for the maturity starting one period in the future, and ending three periods in the future.

	And so on.		And so on.

imported>Doug Williamson: Expand narrative about notation.

2015-11-21T17:20:47Z

Expand narrative about notation.

← Older revision		Revision as of 17:20, 21 November 2015
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	''Periodic forward yields ('''f'''):''		''Periodic forward yields ('''f'''):''

	f<sub>0-1</sub>: the rate per period for the maturity starting now and ending one period in the future		f<sub>0-1</sub>: the rate per period for the maturity starting now and ending one period in the future.

	f<sub>1-2</sub>: the rate per period for the maturity starting one period in the future, and ending two periods in the future		f<sub>1-2</sub>: the rate per period for the maturity starting one period in the future, and ending two periods in the future.

	And so on.		And so on.
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	''Periodic zero coupon yields ('''z'''):''		''Periodic zero coupon yields ('''z'''):''

	z<sub>0-1</sub>: the rate per period for the maturity starting now and ending one period in the future		z<sub>0-1</sub>: the rate per period for the maturity starting now and ending one period in the future.

	z<sub>0-2</sub>: the rate per period for the maturity starting now, and ending two periods in the future		z<sub>0-2</sub>: the rate per period for the maturity starting now, and ending two periods in the future, with all of the rolled up compounded interest paid at the end of period 2.

	And so on.		And so on.