Forward yield: Difference between revisions
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imported>Doug Williamson (Add note about converting to other yield curves.) |
imported>Doug Williamson (Link with Periodic yield page.) |
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* [[Zero coupon yield]] | * [[Zero coupon yield]] | ||
* [[Forward rate agreement]] | * [[Forward rate agreement]] | ||
* [[Periodic yield]] | |||
Revision as of 09:28, 13 November 2015
The rate of return in the market today for a notional or actual deposit or borrowing:
- Starting at a fixed future date; and
- Ending on a later fixed future date.
Example
The forward yield for the maturity 2-3 periods is 3% per period.
This means that a deposit of £1,000,000 at Time 2 periods would return:
£1,000,000 x 1.03
= £1,030,000 at Time 3 periods.
A common application of forward yields is the pricing of forward rate agreements.
The forward yield is also known as the Forward rate or (sometimes) the Forward forward rate.
(The Forward forward rate is technically slightly different.)
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.
