office (412)
967-93673.14 Interactive FTS
Case Objective
This case extends B02 (see chapter 2) to add both future interest rate uncertainty and private information. This links concepts associated with the efficient markets hypothesis to the fixed income markets. That is, how well do bond prices reflect the information that is privately available to different members of the trading crowd.
In this exercise different traders have different pieces of information about future spot rates. The price discovery problem is very dynamic and determines how much information can be inferred from the yield curve.
Key Concepts
Informational efficiency and bond pricing. Interest rate uncertainty.
Textbook Integration: Background Reading
Section 3.10 Theories of the Term Structure of Interest Rates
Market Microstructure: Rules Governing Trading
Instructor References for the FTS Interactive Markets
Overview of FTS Interactive Markets