Description
Return weighted expected average and long yield minus average.
A financial model connects supplied rates, discount factors, cashflows or prices under a particular convention. A local identity or residual is not a complete valuation, an observed market relationship or a promise of future returns.
Return weighted expected average and long yield minus average.
When to use this tool
Use Term Premium Expectation Residual when you need one transparent financial-model term.
How to use the tool and how it works
- Enter longYield, expectedShortRates, maturityWeights. Keep parallel arrays aligned. Use the units and conventions below.
- Run the tool. Correct any format, range, or cross-field input error before interpreting the output.
- Read expectedAverage, residualPremium. Use the output convention below.
Require aligned nonempty short-rate/weight arrays, nonnegative weights and total within 1e-12 of one. Return weighted expected average and long yield minus average.1
| Input field | Meaning and units | Accepted input |
|---|---|---|
| longYield | Long Yield | Required. Finite number. |
| expectedShortRates | Expected Short Rates | Required. Array of finite number; maximum items 256. |
| maturityWeights | Maturity Weights | Required. Array of finite number; maximum items 256. |
| Output field | Interpretation | Returned shape |
|---|---|---|
| expectedAverage | Expected Average | Required. Finite number. |
| residualPremium | Residual Premium | Required. Finite number. |
{
"input": {
"longYield": 0.05,
"expectedShortRates": [
0.02,
0.04
],
"maturityWeights": [
0.5,
0.5
]
},
"output": {
"expectedAverage": 0.03,
"residualPremium": 0.020000000000000004
}
}Limitations and assumptions
- All rates share a period/compounding convention. Residual is a supplied-model term, not identified pure term premium or a forecast; no convexity or risk correction is inferred.
- Inputs must satisfy both the field types and the cross-field conditions above. Invalid input causes an error; a successful false flag or documented placeholder is a different result.
- Numeric calculations use binary floating point unless exact decimal-integer arithmetic is explicitly stated. No hidden measurement tolerance or decimal rounding is added; nonfinite or out-of-contract results are rejected. Numeric signed-zero results are exported as zero.
Alternative or Complementary methods
Use a complete model matching the instrument, cashflows and market conventions. Review compounding, timing, currency, uncertainty and omitted costs before using a local estimate in a financial decision.
References
Similar or alternative tools
- Yield Curve Forward Slope Term
Return zeroRate+maturity×zeroRateSlope as instantaneousForward and the slope contribution separately.
- Forward Rate Discount Factor Two Dates
Divide log discount ratio by time gap for continuous rate, or take its reciprocal-gap power minus one otherwise.