Spot Rates, Forward Rates, and Yield-Curve Pricing

Free SOA Exam FM (Financial Mathematics) lesson in General Cash Flows, Portfolios, and Asset-Liability Management. 16 min read, ~2,404 words.

Spot rate is the yield on a zero maturing at: a cash flow at is discounted by. Bootstrap spot rates shortest-first: solve from a 1-year bond, then use it to solve from a 2-year bond, and so on. Forward rate:. The larger accumulation factor's exponent is always on top. No-arbitrage...