Everybody talks about LIBOR, and you don't really hear much about LIBID. In fact, the BBA only fixes LIBOR and LIBID is left to free float if you like. The fact is that most banks will need to borrow more than they will need to lend. Or rather, for each investment opportunity they see they will … Continue reading LIBOR vs LIBID

Intuition for the forward FX equation

Every quant knows the expression that defines a forward FX rate on date t with maturity T: where B_f is the foreign discount factor and B_d is the domestic discount factor. But what is the best way to explain this intuitively? Here is my suggestion. Let's pick an example pair, say EUR and CHF, and see … Continue reading Intuition for the forward FX equation