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11

The PCA analysis does not really tell you what the bonds do but it tells you how the rates move together. The variations of $n$ rates (i.e. 1 y, 2y, ...) are split up in (at first) abstract factors like $$ \Delta R_i = \sum_{j=1}^n e_{i,j} f_j $$ where $\Delta R_i$ is the change in the rate $i$ and $f_j$ is factor $j$ and $e_{i,j}$ is the (factor loading=) ...


6

The majority of the movement in currencies is in the spot rates, rather than in the term structure. A 3-month rolling hedge would always be protecting against movements in the spot rates, no matter when they happen. Using your example, if the current EUR/USD rate is 1.3333, you might be able to get a 3-month forward at 1.3339. (Forgive me if I have the ...


4

Yes. Although sometimes people mean the Euro/Dollar currency pair which can cause confusion. Besides the daily mark-to-market, the counter-party risk is also removed through the clearing house for the futures. No. Eurodollar and FRA are not the same as swaps. A Eurodollar fixes an interest rate for a three month period in the future whereas a swap ...


3

The two are not equivalent, because of the cross-currency basis spread (CCBS), which became a risk factor in itself sice 2007, and does depend on term. This practically leeds to a difference in your constantly-assumed notionals (the notional is not constant anymore). What it happens is that you assume having a constant notional cross-currency swap that ...


3

If you're asking what the FX Outright for 1M EUR/PLN is, given that table, then yes the answer is just outright = spot + fwd points, which is 3.4550 + 0.0079 = 3.4629 (you had the wrong column for your 1M value). Usually fwd points are quoted directly (i.e. not as an outright), using a divisor set by market convention. I expect EUR/PLN divisor to be 10,000, ...


2

In my mind you are simply right: you arrive at $$ f(t,S) = S(t) - K e^{-r(T-t)}. $$ Assume that $t=0$, so we are at the inception of the contract, then $$ f(0,S) = S(0) - Ke^{-r T}. $$ If you choose $K = S(0) e^{r T}$ then the contract value at inception is zero. This simply means that the fair price for the forward is given by $K= S(0) e^{r T}$ which is ...


2

You need to isolate the risk factors that impact your forward contract, which is your spot fx rate, and the two rates of each currency that underlies the forward contract. You therefore need to estimate the VaRs of each of those risk factors. You also need the correlations between the underlying risk factors. For example, a forward to buy USD in exchange ...


1

Forward points are calculated by the short term interest rate desks (STIR) and, because central banks and governments don't often change their money market base rates, the fluctuations set by the interest rate markets are infrequent. The interest rates depend on the money markets. Forex all-in rates are calculated depending on the interest rate premium, or ...


1

Not sure how you're looking to use it, but if you start with an IMM date in cell A1 (e.g. 9/18/2013), in cell A2 put... =DATE(YEAR(A1), MONTH(A1) + 3, 1 + MOD(4 - WEEKDAY(DATE(YEAR(A1), MONTH(A1) + 3, 1)), 7) + 14) ...and drag it down. It will return the 3rd Wednesday of the month for every third month, so assuming that the month of the date you put in ...


1

Because the day count of your inquired date is 366 days: Hkd daycount is act/365 therefore 366/365 Usd daycount is act/360 therefore 366/360 $$ \frac{7.7487}{7.7587} = \frac{1+r_2(\frac{366}{365})}{1+0.00965×\frac{366}{360}} $$ Solving for $r_2 = 0.8486$.



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