Using examples from the financial markets, this note examines the links between market prices, said interest rates and contributes to assumptions. The note highlights how interest rates are an expression of the market price, and pays particular attention to the role of compounding assumptions. Market prices are converted to said interest rates for different compounding assumptions. Guidance is offered on how to make intelligent comparisons between markets that use different conventions recipe. The note is useful as a background for the study of a wide range of issues of pricing in the fixed income and options.
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by Robert S. Harris, Robert M. Conroy Source: Darden School of Business 6 pages. Publication Date: February 5, 2007. Prod. #: UV0779-PDF-ENG
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