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Pricing of Forward Rate Agreements

Pricing of Forward Rate Agreements

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Pricing of Forward Rate Agreements

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  1. Pricing of Forward Rate Agreements Analytical finance ii Michael Aussieker, Oliver Grace

  2. Step One • Calculate the discount factors:

  3. Step Two • Calculate the Zero Coupon Rates:

  4. The Nelson–Siegel–Svenssonmodel where are parameters calculated via least squares or a solver such as the one found in Microsoft Excel.

  5. Calculate Parameters Used R language to calculate parameters below:

  6. Step Three • Calculate Zero Rate Curve for EUR 3M, EUR 6M, EUR OIS 3M, EUR OIS 6M with NSS • Find 3x6 etc Forward Rates from EUR 3M and 3x9 etc Rates from EUR 6M • Do same for EUR OIS 3M and EUR OIS 6M curves

  7. 3 Month FRA

  8. 6 Month FRA