# Tagged Questions

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### Fixed Income Swap Sharpe Ratio Calculation

I have a Fixed Income based strategy based on swaps. Q1.) Given that swaps are based on a "notional" principal and no actual exchange of principal's takes place, is it fair to assume a funding cost ...
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### How to calculate the pre-tax cost of debt for a mix of bonds allotted to a company?

I need to calculate the effective interest rate a company X is paying on the total debt it has been loaned (to arrive at the Cost of Debt) for the FY 2011-12. Its long term borrowings are a mix of ...
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### Discounting based on instrument type

Suppose we have an asset $A$, and we have modelled the cashflows for this asset to be $\{C_{1},\ldots C_{k}\}$ which occur at time $\{T_{1},\ldots T_{k}\}$. Now the present value of the asset can be ...
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### What type of interpolation should be used in key rate perturbation models?

When perturbing a key rate in order to assess sensitivity of portfolio value, what sort of interpolation is standard? A book I am looking at says linear, but this seems pretty unrealistic to me--and ...
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### Fixed Income free research available online

As from the title, I would like to know where it is possible to find free research focused on fixed income markets' themes and topics, such as interest rates, credit risk related fundamentals, new ...
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### Matlab; How to specify Coupon frequency for Interest Rate Swap

I'm trying to price an interest rate swap and would like to change the default coupon payment frequency from 1 a year to 2 or 4 a year. I'm using ...
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### Yield on Fixed income futures

I am trying to get a simplified model of the DV01 for the US 10YR Note futures but I cant figure out what the current yield is. When I back out the implied interest rate on the current TYM3 futures ...
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### Annual Percentage Rate and Yield

I found references relative to US where the Nominal Annual Percentage Rate or simply APR is defined as the simple interest rate (i.e. proportional to time and without compounding). Instead the ...
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### How to hedge the fixed leg of a swap contract?

I happened to get this question for Fixed Income Swap contract. (let's assume it's it's not cross currency). If the fixed leg is paying 10% interest rate in this contract, but in the market the ...
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### Yield Curve Volatility

Let you have several issuers, and let each issuer have its yield curve built up with liquid plain vanilla fixed rate bonds. Each yield curve has its slope and its curvature, and they obviously change ...
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### Implied forward rates puzzle

Here's an interesting cocktail puzzle related to the term structure of interest rates. One of the primary competing theories for explaining the term structure of rates is the Rational Exepctations ...
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### Is it true that pricing an IR swap doesn't require any stochastic model but calculation of the PFE of an IR swap would?

Pricing an IR swap doesn't require any stochastic model but calculation of the PFE for an IR swap would require the Hull White Model or any other stochastic short rate or forward rate model. Is ...
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### What is a real world example of negative forward interest rate?

As the title says, I am looking for a real world example where a forward interest rate is negative. Theoretically this is not a problem at all, if I look for a 3M forward interest rate that starts ...
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### Should we apply practical constraints on the distribution of monte carlo paths?

to limit interest rate paths to a 'reasonable' range (if we could define reasonable). Now we calibrate log-normal skew and mean reversion monthly to robust basket of atm swaptions and in and out ...
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### What are the limits of bond portfolio immunization against interest rate changes?

I'm currently reading through an article on bond portfolio immunization against changes in the interest rate. I learned that the immunization can be done against instant changes in interest rate ...
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### How to value a floor when a loan is callable?

Certain bank loans pay a spread above a floating-rate interest rate (typically LIBOR) subject to a floor. I would like to find the value of this floor to the investor. Assume for this example that ...
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### Why is the SABR volatility model not good at pricing a constant maturity swap (CMS)?

I have heard that the SABR volatility model was not good at pricing a constant maturity swap (CMS). How is that?
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### Is Duration really the slope of the Price-Yield curve?

When looking at the Price-vs-Yield graph for a fixed rate instrument, we are often told that the duration is the slope of that curve. But is that really right? Duration is (change in price) divided ...
A simple interest rate model in discrete time is the autoregressive model, $$I_{n+1} = \alpha I_n+w_n$$ where $\alpha\in [0,1)$ and $w_n\geq 0$ are i.i.d. random variables. When working with ruin ...