Yield Curve Estimation

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Financial Modelling – Session VII Email: jcadete@clsbe.lisboa.ucp.pt Financial Modelling Joaquim Joaquim Cadete Cadete 1 How your work is going to be scored? Svensson Model: IR Swaps: CIR Model: Modeling Formalization (6) Functions Efficiency Gains (3) Functions Efficiency Gains (3) Further Improvements (5) Efficiency Gains (3) User’s Perspective Your Grade Financial Modelling Joaquim Cadete 2 Risk Management: the main concern… Counterparty risk Credit risk Interest rate risk Capital risk and solvency Funding risk Risk Management Reputational risk Foreign exchange risk Off-balance sheet risk Operational risk Financial Modelling Market or…show more content…
Internal Rate of Return Net Present Value (NPV) Year 0 -1000 Year 1 300 Year 2 300 19,91% 0,00 € Year 3 300 Year 4 300 Year 5 300 Year 6 300 YTM calculation assumes that coupon payments will be reinvested over time at the same level Future Value Analysis Time Cash-Flows All cash-flows referenced to Year 6. Internal Rate of Return Net Future Value (NFV) Financial Modelling Year 0 -2971,89 Year 1 743,56 Year 2 620,12 Year 3 517,18 Year 4 431,32 Year 5 359,72 Year 6 300,00 19,91% 0,00 € Joaquim Cadete 15 Valuation of debt securities: just a recap Valuation using multiple discount rates: Suppose that the appropriate discount
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