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Chapter 13

# Forward Rates

## 13.1 CHAPTER SUMMARY

In this chapter we generalize the idea of yield from Chapter 12 to situations where the money is borrowed at one time in the future and repaid at another time at some yet more distant future. Requiring these rates to be positive implies some constraints on possible yield curves. With these results we are able to find some better ways to interpolate yield curve data.

## 13.2 Introduction

In Chapter 12 we discussed the idea of a yield curve. This gave the rate of interest payable on a loan arranged today for money accepted today and repaid at time T in the future. If we denote today by time t, we can call this rate rt(t, T), and the collection of these rates for all repayment times T is what we have been ...

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