Download This PaperAn Empirical Investigation of the Forward Interest Rate Term Structure
34 Pages Posted: 12 Aug 1999
Date Written: July 20, 1999
Abstract
In this paper we study empirically the Forward Rate Curve (FRC) of 5 different currencies. We confirm and extend the findings of a previous investigation of the U.S. FRC. In particular, the average FRC follows a square-root law, with a prefactor related to the spot volatility, suggesting a Value-at-Risk like pricing. We find a striking correlation between the instantaneous FRC and the past spot trend over a certain time horizon, in agreement with the idea of an extrapolated trend effect. We present a model which can be adequately calibrated to account for these effects.
JEL Classification: E43, G12, G15
Suggested Citation: Suggested Citation
Bouchaud, Jean-Philippe and Matacz, Andrew, An Empirical Investigation of the Forward Interest Rate
Term Structure (July 20, 1999). Available at SSRN: https://ssrn.com/abstract=171735 or http://dx.doi.org/10.2139/ssrn.171735
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