Forward Rates¶
One-line definition¶
The interest rate implied between two future dates by today's zero curve.
Formula¶
(1+z2)^t2 = (1+z1)^t1 * (1+f)^(t2-t1)
f = ((1+z2)^t2 / (1+z1)^t1)^(1/(t2-t1)) - 1
Why PMs care¶
Forward rates are the market's break-even for future rates — a curve position only makes money if realized rates differ from what's already priced into the forwards.
Common mistake¶
Treating the forward rate as a prediction rather than a break-even implied by no-arbitrage.