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3
votes
0answers
5 views

Equivalency of FX forwards and FX fixed for fixed swaps? Are they still the same under multiple curves environment?

I am encountering two approaches for valuation of FX swaps (fixed for fixed, e.g. fixed USD payments for fixed EUR payments) which seem to result into different values although in theory they should ...
0
votes
0answers
13 views

How would MTM an interest only currency swap affect its valuation?

Not sure how a central clearing house that marks an interest only currency swap between two parties to market everyday would effect the currency swap's price. Any ideas?
0
votes
0answers
11 views

Modified average swap

I have an instrument that is a swap over the SMK6 that at expiry (it has only one cashflow) pays the difference between the average daily Price of the underlying and the actual Price. The average ...
2
votes
1answer
47 views

decompose correlation swap pnl

For a Variance swap we can split the pnl into a realized part and a "forward going" part. To be more precise: Assume we enter the trade at t0, and the variance swap has tenor T and a strike $Kvar$. ...
2
votes
0answers
44 views

Dual discounted forward curve

I was wondering how to calculate the forward rates based on OIS discounting for the half year terms. I know how to do this for the full year terms -> just making sure that the two legs are equal to ...
2
votes
1answer
77 views

Pricing homogeneous Basket Default Swap

Consider a basket with $K=10$ names. Default times of the names, $\tau_k$, are i.i.d. random variables with distribution $P(\tau_k \leq t) = 1 - e^{-\lambda t}$. Suppose that each name in the ...
0
votes
1answer
36 views

Swaption on a swap with 0 year tenor

Any ideas on valuation of IRS swaption on a swap with 0 year tenor? As an example, we have a 5 year swaption, on expiration it is cash settled; the underlying swap tenor is 0 years with excercise and ...
3
votes
1answer
70 views

What is mathematically rigorous way to estimate floating swap cash flow in the future?

In vanilla swap, the FL payments is fixed on one date and paid on the next reset date. So the next payment is known. However, the payment after that is not known. What would be the best estimate of ...
3
votes
2answers
84 views

If floating leg in an arrears swap is paid on the date then valuing them is like predicting future

From what I am reading arrears swap are paid on the same day(actually, +2 business days for JPY and USD) as the reset date. To me then, a week before the reset date the floating rate is not known. ...
3
votes
2answers
111 views

Why does the valuation of the floating leg of a swap only use the next payment?

At time $t=0$, swap has zero cost. In fact, both parties may have valued the swap differently based on their zero swap curve-but somehow they agreed. Once a swap is agreed upon it cannot be dissolved ...
2
votes
1answer
71 views

Why is convexity adjustment applied to swap price for a nonstandard swap, in simple terms?

Martinelli et al. show that when the 3-month Libor is replaced by the 3-month Libor forward rates (which are obtained from the spot zero-coupon yield) then the swap price depends only on zero-coupon ...
1
vote
1answer
82 views

Swap Rate vs Par Rate

If we calculate the par rate for n periods, why does the nth swap rate equal the par rate? A mathematical formulation would be helpful apart from an intuitive answer. Edit: Example:- A 2 year ...
3
votes
1answer
92 views

Something is wrong with my MtM calculation

I'm trying to value a super simple receiver swap immediately after the first swap settlement (1 year in). The given answer is -1.91 million to the floating rate payer, but I am not coming up with ...
0
votes
1answer
71 views

Quantlib bootstraping fails on 5y swap

I'm trying to build a euro swap curve with real up to date data. I should say that examples provided in github work fine. as soon as I add the 5y swap, I got the following error : ...
1
vote
0answers
53 views

CVA for an inflation linked swap

I am trying to value an inflation linked swap and wish to calculate the associated CVA and DVA. I think the best way to approach this would be via a simulation. Suppose I wish to calculate CVA over ...
1
vote
2answers
125 views

Why QuantLib computes the fixed-leg swap rate by this formula?

I'm trying to understand how QuantLib creates (bootstraps) a yield curve from a vanilla swap at the source level. I have the following test code: ...
2
votes
1answer
109 views

Derive OIS rate from IRS rate and Fed Funds/Libor basis spread

For example I have 7Y interest rate swap rate and 7Y Fed funds/Libor basis spread. What is the step-by-step procedure to derive OIS rate from these two?
1
vote
1answer
341 views

Libor OIS basis swap equation

I'm a little embarrassed about this because I have a PhD in math, but I'm having a little trouble working out how to bootstrap an OIS curve from libor rates and basis swap rates. If I had an equation ...
2
votes
1answer
126 views

Why is CSA currency OIS rate used in discounting instead of local currency OIS?

I have been struggling to understand the logic behind cross currency OIS discounting (where cash flows happen in different currencies than the collateral is paid). I will illustrate my question ...
4
votes
1answer
499 views

Why using the swap curve as riskfree rate and no longer gov bonds?

I recently had an interview where I was asked what to use as risk-free rate. In all my textbooks it was always the US treasury yield curve. But they said no its now the "swap curve". Why is the swap ...
0
votes
0answers
43 views

FX rollover swaps rates based on LIBOR rates

I am trying to calculate FX swaps overnight rates based on LIBOR rates Example: Libor rate for TRY crosses is 12.00 Libor rate for USD crosses is .19 How do we get to these number? USDTRY swaps ...
0
votes
0answers
58 views

Value-at-Risk - Currency Swap

Can someone explain to me how to calculate the VaR (delta-normal-method) for a Currency Swap? Thanks in advance. Regards Alexander
1
vote
1answer
243 views

What is a Basis Swap Curve?

I know what a Swap Curve is. But I don't understand what a Basis Swap Curve is and how it is constructed? Need some guidance on this.
1
vote
1answer
62 views

Variance Swap volatility

In an article, it is mentioned that a parameter is "the variance swap volatility at time t". I know what a variance swap is but I don't know what they could mean by "variance swap volatility". ...
0
votes
1answer
325 views

Stub rate and first fixing in IRS

I have 2 questions that probably are related. Suppose there is an IRS that pays a 2% fixed rate every 6 months and receives the Libor 3 months (but paid every 6 months). The swap starts today (March ...
2
votes
1answer
136 views

Spread over LIBOR on a Equity Swap

Does anyone how banks determine the spread over LIBOR on a Equity Swap? Example: Party A pays the return on SPTR to Party B Party B pays 1M LIBOR + 40 bps to Party A Does anyone know how the 40 ...
1
vote
0answers
27 views

Using Forward Equity Returns to Value Stream of Equity Return Cash Flows

Can I value the equity leg of an equity swap using the projected forward equity returns? In other words, for a sequence of times $t_{0}<t_{1}<\ldots<t_{n}$, where $t_{0}$ begins a brand new ...
1
vote
1answer
221 views

Does an Interest Rate Swap has a Vega component?

I am a bit confused on how you calculate vega for Interest Rate Swap. One argument is that IR Swap is a combination of fixed rate bond and floating rate bond. Since a bond has no vega component, IR ...
1
vote
2answers
121 views

OIS & LIBOR swap

Why do people use OIS and LIBOR swap spread to compare/value bonds/derivatives? Why not just use US treasury?
2
votes
1answer
172 views

Building curves using onshore or offshore JPY overnight rates?

I am trying to build Japanese Yen interest rate curves. When defining the curve instruments for the 'OIS' (discount) curve (aka TONAR), I am uncertain as to which rate to use for the overnight deposit ...
0
votes
1answer
102 views

How can we write swap as a chain of FRA's

For the rest of my question I use the notation from Brigo. The discounted payoff of a receiver interest rate swap (RFS) at $t<T_{\alpha}$, where $T_{\alpha}$ is the first resetting date, is given ...
1
vote
1answer
261 views

negative discount and zero rate on swap bootstraping

Hi I am writing a program to Bootstrap a EURO zero swap-curve for tenor 3M and 6M with given bid and ask. When I run the program , I get a negative zero rate and discount factor from 5Y till 30Y for ...
4
votes
1answer
839 views

How to calculate a forward-starting swap with forward equations?

I have been trying to resolve this problem for some time but I cannot get the correct answer. The problem is the following one. Compute the initial value of a forward-starting swap that begins at ...
0
votes
0answers
51 views

What interest rate dynamics would you suggest to simulate a single swap?

I need to calculate the Potential Future Exposure (PFE) for a single swap (not a portfolio). As far as I know, a stochastic model is needed to simulate the interest rate curves (from here). Could ...
2
votes
2answers
589 views

Curve Euribor - Euribor 3M

I'm setting up some Euribor 6M and Euribor 3M curves. So far i have all the data and quotes i need, but i'm having trouble defining the firsts points of the curve. I'm currently using 6M Euribor and ...
1
vote
2answers
88 views

How to calculate cash flow for XC swap

Given 3MLibor vs 12MLibor USD basis swap the 3M Libor is exchanged at 12MLibor+1%. How to calculate the cash flow
2
votes
0answers
630 views

How to compute for basis adjusted forward rate?

To give you a brief background, I'm valuing a fixed-for-float Interest Rate Swap (IRS) using Bloomberg. I put in a notional amount in (USD) and a assigned 6MO USD LIBOR as the reference index for the ...
1
vote
0answers
61 views

Cross-Currency Inflation-Linked Swap

I am trying to find any references to cross-currency inflation-linked swaps. Have anyone encountered them and can describe how they work and how they differ from standard year on year inflation swaps? ...
8
votes
2answers
13k views

What is the Swap Curve?

What is the so-called Swap Curve, and how does it relate to the Zero Curve (or spot yield curve)? Does it only refer to a curve of swap rates versus maturities found in the market? Or is it a swap ...
2
votes
1answer
586 views

Incoherence in Bloomberg Data in Swap Curve Builder (ICSV)

When working on calibration for LMM model, we need to have Initial Libor quotes and Swaptions Black vol quotes on the market data. We have data provided by Bloomberg. However, before performing the ...
3
votes
1answer
597 views

Inflation-Linked Bonds & Asset Swap Spreads

I am trying to plot the asset swap spreads of government inflation-linked bonds (ILBs) versus the asset swap spread of government nominal (plain-vanilla) reference bonds. I used the article in the ...
1
vote
1answer
904 views

Hedging a Long Equity Swap by Shorting the Stock

Suppose that I enter an Equity Swap, such that I pay a floating rate and I receive the equity return. The payment is every one year for both the rate and the return, and the swap expires in one year. ...
6
votes
3answers
608 views

Deriving Interest Rates

I am trying to teach myself about interest rate swaps, how they are priced, etc... Easy enough - just comparing cash flows of fixed and floating rate bonds. However, what I'm struggling with is how ...
1
vote
1answer
210 views

Girsanov theorem in CMS convexity derivation

I am going through the derivation of CMS convexity from the notes of Lesniewski There is a transformation from $T_p$ forward measure to annuity measure $Q$ as $$ ...
3
votes
2answers
779 views

IMM Swaps vs. Forward Swaps

Could we think of IMM dated swaps as forward swaps (since they trade only on specified dates and they might not be the current date)? For example, today is June 2nd, the next IMM swap is June 14 (not ...
3
votes
2answers
329 views

Why is USD LIBOR used for USD denominated securities?

I am just starting on Interest Rate Swaps & curve construction. While reading few materials on Interest Rate Swap, it's indicated for e.g. "Floating Coupon Index: 6 month USD LIBOR". LIBOR is ...
3
votes
2answers
534 views

How do insurance companies use interest-rate swaps?

I have heard that insurance companies make use of swaps and am just trying to get some clarity on that: An insurance company (assume life insurance) has a fixed obligation to pay in the distant ...
3
votes
2answers
904 views

Why is “full” Yield Curve (term structure of interest rates) 3 component based?

I am trying to understand bond-valuation and construction of yield curve. I don't have any exposure to bootstrapping or what-so-ever as of now. So it's appreciated to have an example but not too ...
2
votes
1answer
164 views

Is this an inconsistency between Swap and LIBOR?

I'm a little confused by what I see as an inconsistency between quoted £ swap rates and £ LIBOR. From the FT on 25/4/14: 1-year Swap (semi-annual): Bid - $0.63\%$; Ask - $0.66\%$ LIBOR: 6-month - ...
5
votes
0answers
1k views

Calculate interest rate swap curve from Eurodollar futures price

So I was reading Robert McDonald's "Derivatives Markets" and it says Eurodollar futures price can be used to obtain a strip of forward interest rates. We can then use this to obtain the implied ...