What is deterministic spot rate function
What is deterministic spot rate function?
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In actuality, we have many bonds of various maturity, some without any coupons but most along with, and also very liquid swaps of different maturities. All such instruments are a constraint at the r(t) function. Bootstrapping is backing out a deterministic spot rate function, r(t), also termed as the (instantaneous) forward rate curve which is consistent along with all of these liquid instruments.
Assume Morgan Guaranty, Ltd. is quoting swap rates as follows: 7.75 - 8.10 percent annually against six-month dollar LIBOR for dollars and 11.25 - 11.65 percent annually against six-month dollar LIBOR for British pound sterling. At what rates will Morgan Gua
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