Risk Free Interest Rate

Key Concepts


The risk free interest rate is the hurdle rate for investments. If investors can get a rate of return with virtually no risk, an investment needs to offer the potential for a greater return to attract capital from rational investors. The risk free interest rate also impacts some performance statistics, like Sharpe and Sortino ratios. Risk free interest rate models provide the interest rate data to your algorithms to enable these calculations.

Set Models

To set the risk free interest rate model, in the Initialize method, call the SetRiskFreeInterestRateModelset_risk_free_interest_rate_model method.

// In Initialize
SetRiskFreeInterestRateModel(new ConstantRiskFreeRateInterestRateModel(0.02m));
# In Initialize

To view all the pre-built risk free interest rate models, see Supported Models.

Default Behavior

The default risk free interest rate model is the InterestRateProvider, which provides the primary credit rate from the Federal Open Market Committee (FOMC).

Model Structure

Risk free interest rate models must extend the IRiskFreeInterestRateModel interface. Extensions of the IRiskFreeInterestRateModel interface must implement a GetInterestRateget_interest_rate method. The GetInterestRateget_interest_rate method returns the risk free interest rate for a given date.

// In the Initialize method, set the risk free interest rate model
SetRiskFreeInterestRateModel(new MyRiskFreeInterestRateModel());

// Define the custom risk free interest rate model
public class MyRiskFreeInterestRateModel : IRiskFreeInterestRateModel 
    public decimal GetInterestRate(DateTime date) 
        return 0.02m;
# In the Initialize method, set the risk free interest rate model
# Define the custom risk free interest rate model
class MyRiskFreeInterestRateModel:
    def get_interest_rate(self, date: datetime) -> float:
        return 0.02

For a full example algorithm, see this backtestthis backtest.

Disable Interest Rates

To disable the risk free interest rate, set the model to the ConstantRiskFreeRateInterestRateModel and set the risk free rate to zero.

SetRiskFreeInterestRateModel(new ConstantRiskFreeRateInterestRateModel(0));

Get Interest Rate

To get the risk free interest rate for a specific time, call the GetInterestRateget_interest_rate method with the time.

var riskFreeInterestRate = RiskFreeInterestRateModel.GetInterestRate(Time);
risk_free_interest_rate = self.risk_free_interest_rate_model.get_interest_rate(self.time)

To get the average risk free interest rate for a window of time, call the GetRiskFreeRate method with the start date and end date. RiskFreeInterestRateModelExtensions.get_risk_free_rate method with the model, the start date, and end date.

var avgRiskFreeInterestRate = RiskFreeInterestRateModel.GetRiskFreeRate(Time.AddDays(-30), Time);
avg_risk_free_interest_rate = RiskFreeInterestRateModelExtensions.get_risk_free_rate(
    self.time-timedelta(7), self.time

To get the average risk free interest rate for a set of dates, call the GetAverageRiskFreeRate method with the list of dates. RiskFreeInterestRateModelExtensions.get_average_risk_free_rate method with the model and list of dates.

var avgRiskFreeInterestRate = RiskFreeInterestRateModel.GetAverageRiskFreeRate(
    new [] {Time, Time.AddDays(-180), Time.AddDays(-365)}
avg_risk_free_interest_rate = RiskFreeInterestRateModelExtensions.get_average_risk_free_rate(
    [self.time, self.time-timedelta(180), self.time-timedelta(365)]

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