What is an ‘Implied Rate’
An implied rate is an interest rate that is determined by the difference between the spot rate and the forward/futures rate. The degree of relative costliness of a future rate can be assessed by comparing the implied rate with the spot rate.
Calculated as:
Explaining ‘Implied Rate’
For example, if the present spot rate of LIBOR is 5% and the forward rate for LIBOR is 6%, the implied rate is 1%. This situation merits the impression that the future rate for borrowing will be more expensive.
Further Reading
- Are implied volatilities more informative? The Brazilian real exchange rate case – www.tandfonline.com [PDF]
- PE ratios, PEG ratios, and estimating the implied expected rate of return on equity capital – meridian.allenpress.com [PDF]
- Implied interest rates – www.jstor.org [PDF]
- The economics of options-implied inflation probability density functions – www.sciencedirect.com [PDF]
- The calculation of implied variances from the Black-Scholes model: A note – www.jstor.org [PDF]
- Forecasting exchange rate volatility: GARCH models versus implied volatility forecasts – link.springer.com [PDF]
- Uncertainty and implied variance bounds in long-memory models of the interest rate term structure – link.springer.com [PDF]
- Stochastic implied trees: Arbitrage pricing with stochastic term and strike structure of volatility – www.worldscientific.com [PDF]
- Two unconditionally implied parameters and volatility smiles and skews – www.tandfonline.com [PDF]
- Implied discount rate and payback threshold of energy efficiency investment in the industrial sector – www.tandfonline.com [PDF]
