The Long-Term Swap Rate and a General Analysis of Long-Term Interest Rates

30 Pages Posted: 3 Jul 2015 Last revised: 25 Sep 2015

See all articles by Francesca Biagini

Francesca Biagini

University of Bologna - Department of Mathematics

Alessandro Gnoatto

University of Verona - Department of Economics

Maximilian Härtel

Ludwig Maximilian University of Munich (LMU) - Faculty of Mathematics

Date Written: September 24, 2015

Abstract

We introduce here for the first time the long-term swap rate, char- acterised as the fair rate of an overnight indexed swap with infinitely many exchanges. Furthermore we analyse the relationship between the long-term swap rate, the long-term yield, and the long-term simple rate, considered as long-term discounting rate. We finally investigate the existence of these long-term rates in two term structure methodologies, the Flesaker-Hughston model and the linear-rational model.

Keywords: Term Structure, Overnight Indexed Swap, Long-Term Yield, Long-Term Simple Rate, Long-Term Swap Rate

JEL Classification: E43, G12, G22

Suggested Citation

Biagini, Francesca and Gnoatto, Alessandro and Härtel, Maximilian, The Long-Term Swap Rate and a General Analysis of Long-Term Interest Rates (September 24, 2015). Available at SSRN: https://ssrn.com/abstract=2625569 or http://dx.doi.org/10.2139/ssrn.2625569

Francesca Biagini

University of Bologna - Department of Mathematics ( email )

Piazzadi Porta San Donato, 5
Bologna, 40126
Italy

Alessandro Gnoatto (Contact Author)

University of Verona - Department of Economics ( email )

Via dell'Artigliere, 8
37129 Verona
Italy

Maximilian Härtel

Ludwig Maximilian University of Munich (LMU) - Faculty of Mathematics ( email )

Theresienstrasse 39
Munich
Germany
+49 (0) 89 2180-4198 (Phone)

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