A Simple Model of Interest Rate Term Structure for the Classroom

14 Pages Posted: 22 Apr 2006

See all articles by Tom Arnold

Tom Arnold

University of Richmond - E. Claiborne Robins School of Business

Date Written: June 16, 2006

Abstract

Without much technical expertise, a yield curve model is presented that is very dynamic and can be easily programmed in Excel for classroom presentation or for assignments. By using the output of the model to have students find embedded rates within the yield curve, a discussion of how bond traders speculate on interest rates emerges very easily. Further, the model output can also be used for numerous exercises including the pricing of strips or for evaluating the positions of an entire bond portfolio. Within the exercises, the dynamic nature of the model can be exploited to provide sensitivity analysis.

Keywords: Interest Rate, Term Structure, Excel, Pedagogy

JEL Classification: G10

Suggested Citation

Arnold, Thomas M., A Simple Model of Interest Rate Term Structure for the Classroom (June 16, 2006). Available at SSRN: https://ssrn.com/abstract=897271 or http://dx.doi.org/10.2139/ssrn.897271

Thomas M. Arnold (Contact Author)

University of Richmond - E. Claiborne Robins School of Business ( email )

1 Gateway Drive
Richmond, VA 23173
United States
804-287-6399 (Phone)
804-289-8878 (Fax)

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