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arXiv · 1507.00208

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

Francesca Biagini·Alessandro Gnoatto·Maximilian Härtel
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Abstract

We introduce here for the first time the long-term swap rate, characterised 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, see Biagini et al. [2018], Biagini and H\"artel [2014], and El Karoui et al. [1997], and the long-term simple rate, considered in Brody and Hughston [2016] 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. A numerical example illustrates how our results can be used to estimate the non-optional component of a CoCo bond.

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Francesca Biagini, Alessandro Gnoatto, Maximilian Härtel. 2015-07-01. The Long-Term Swap Rate and a General Analysis of Long-Term Interest Rates. https://arxiv.org/abs/1507.00208

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