Guest Lecture at MP Finance: Discussion of the Risk-free Rate and the Role of the IRD Market

On April 1, a guest lecture was held at the Finance Master's programme as part of the research seminar "Research Methods in Finance". The speaker was Georgy Zanko, a 3rd—year postgraduate student at the Higher School of Economics in St. Petersburg, Head of Money Markets at one of the largest private banks in Russia. The lecture was dedicated to the topic: "Risk-free Rate Proxy and Why the IRD Market is Important."

During the lecture, it was discussed in detail what a risk-free rate is, why it is critically important for estimating the cost of capital, pricing derivatives, discounting cash flows and making investment decisions.

Government bonds and the OIS (Overnight Index Swap) curve were identified as the most common risk-free rate proxies. Particular attention is paid to the fact that it is the OIS curve that is considered the most correct indicator of market expectations along the trajectory of short-term rates.

The audience analysed why government bond yields often exceed OIS rates, and what factors — regulatory constraints, balance sheet features, and market expectations — lead to this gap.

Also, using practical examples with Russian instruments (OFZ-PD, OFZ-PC, RUONIA), it was shown how strategies are formed in the market and how to take into account the nuances of calculating profitability and risks.

Modelling issues were discussed separately: the use of OIS makes it possible to mitigate model assumptions, and accounting for spreads between IRD and government bonds increases the accuracy of the analysis.

After the lecture, there was a lively discussion about the current situation in the interest rate market, challenges for financial models and the specifics of the practical application of the considered instruments. Georgy Zanko stressed that in modern conditions it is especially important to take into account the specifics of the IRD market and correctly choose a risk-free rate proxy for various financial analysis tasks.

The lecture aroused great interest among graduate students, many noted the relevance of the topic and the high level of practical study of the material.