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The Arithmetics of Par, Spot and Forward Curves

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  • Vahagn Melik-Parsadanyan

Abstract

The understanding of the dynamics and shape of term structure of interest rates has been of a big interest to practitioners and academics. It is well documented that if the spot curve is monotonically upward-sloping (with decreasing growth rate) the par curve shows the same pattern, while the forward rate curve is first upward-sloping and then it inverts. Spot curve lies above the par curve, and the forward rate curve lies above the spot curve. If the spot curve is inverted, the pattern and ordering of the curves revert and the three curves are identical only if they are flat. This article aims to present mathematically the joint behavior of par, spot, and forward curves in discrete time setting.

Suggested Citation

  • Vahagn Melik-Parsadanyan, 2016. "The Arithmetics of Par, Spot and Forward Curves," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(12), pages 183-186, December.
    • Handle: RePEc:ibn:ijefaa:v:8:y:2016:i:12:p:183-186
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    References listed on IDEAS

    as
    1. Choudhry, Moorad, 2001. "Bond and Money Markets: Strategy, Trading, Analysis," Elsevier Monographs, Elsevier, edition 1, number 9780750646772.
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    Cited by:

    1. Dewundara Liyanage P. M. Rathnasingha & Kangara Pathirannehelage N. S. Dayarathne, 2021. "Constructing the Yield Curve for Sri Lankas Government Bond Market," International Journal of Business and Economic Affairs (IJBEA), Sana N. Maswadeh, vol. 6(1), pages 56-69.

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    More about this item

    Keywords

    yield curve; spot curve; forward curve; par curve; implied spot curve;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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