# Tag Info

8

Firstly, understand that the 1y Libor is not useful here; the swap is 2 6-month periods, which will each fix on 6m Libor. These days, the *ibor fixings at different tenors are essentially separate, and 0x6 & 6x12 do not compound up to 0x12. So we have 6m fixing at 0.63006%, and a 1y swap at 0.645% mid. To do this properly, we would need a discounting ...

6

Federal Home Loan Banks also hold reserves, but are not eligible to earn IOER, so they lend the cash into the fed funds market at a rate below IOER. U.S. branches of foreign banks, who are eligible to earn IOER, borrow from the FHLBs and deposit the proceeds in their accounts at the Fed, earning the spread. U.S. banks don't participate in this arbitrage ...

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The main problem is that you cannot achieve Libor in the markets. So the old-fashioned method of discounting at Libor doesn't work any more. As an example, if you compound up the 3m Libor with today's price on a 3x6 FRA, you won't get 6m Libor. Traditionally, that would mean arbitrage, but these days it's just a fact of life. You cannot achieve 3m Libor for ...

5

Why does USD based security valuation have to give a thing about what London Banks think? Your question is based on false premises: the USD Libor is not determined by polling London based banks as you seem to believe, but banks on the London money market. The difference is important, as there are—of course—banks which are not based in London and active ...

5

The short answer is that Libor swap rates come from the market. They represent a series of cashflows in the future whose value is determined by the fixing, which the market participants have their own valuations of. Since the actual cash flows are now discounted using a separate funding curve, the swap prices embed both a prediction of future fixings and a ...

4

It depends a little what you mean by "current" but the CDS market developed a "standardized model" for transforming between upfront and spread-based quotes. The model depends on an agreed curve of risk-free rates. The LIBOR rates used for CDS settlement are available at: https://www.markit.com/news/InterestRates_CCY_yyyymmdd.zip This is not up-to-the ...

4

Regarding swaps, the current preferred fixings for IRS in various currencies are given below. As with all OTC instruments, you're free to use whatever you like when you agree a deal, though most banks will stick to particular fixings. Ccy Dom Int Alt Int AUD BBSW BBSW LIBOR CAD CDOR CHF LIBOR CZK PRIBOR DKK CIBOR EUR ...

4

First point to consider : some banks are by nature "positive" in their account to the central banks , for instance classical saving banks tend to get more deposit than loans; conversely others are more engage in loans activity (investments banks..) and are by "nature" borrowers on Interbank markets. Secondly (the point you underestimate), mandatory ...

4

Libor includes risk. It is riskier to make a 6m loan than two 3m loan. So the 6m Libor curve is not the same as the 3m one. Ther difference is the basis spread. When using a short rate model, you are modelling one curve. As a first approximation, you can deduce the other curves by adding a deterministic basis spread.

3

An OIS, or Overnight Index Swap, is an interest rate swap whose floating leg payments are calculated as a geometric average of the daily fixings of some underlying O/N or T/N index (these indices are generally volume-weighted averages of reported daily transactions). The annualized floating leg rate is defined as $$c_T^{float} = ... 3 I do not have access to the exact time-series of the MSCI world, but looking at the returns from the tracking ETF, since 2001 the average return is negative. Thus regardless of the risk-free you use you will get a negative sharpe ratio. 3 The flaw is L(T,S) is a future spot rate that is determined at time T>t and unknown at present. It is correct that$$F(t,T,S)=\frac{1}{S-T}\left[\frac{P(t,T)}{P(t,S)}-1\right] \iff P(t,S)(S-T)F(t,T,S) = P(t,T) - P(t,S), $$as this is just the definition of the forward rate. However, you are saying that ... 3 The importance here is that it actually does not matter in what time zone or market the libor rates are set. Key is that it is supposed (!!!) to be a gauge at what rate contributing banks could borrow funds at in the inter-bank market. Like you can go to any African country and borrow or lend US dollar, so can any Japanese, European, or American bank borrow ... 3 I think to have the answer: use qlBondPreviousCashFlowDate() pointing at your FloatingRateBond object to get the last date of payment; use qlInterestRateIndexFixingDate() to get the fixing date referring to the last payment date; use qlIndexAddFixings() to add a fixing rate to the fixing date you got above; repeat for each one of your bonds if they share ... 3 The reference rate used in Australia is the Bank Bill Swap Rate. According to Investopedia "The bank bill interest rate is the wholesale interbank rate within Australia and is published by the Australian Financial Markets Association (AFMA). It is the borrowing rate among the country's top market makers, and is widely used as the benchmark interest rate for ... 2 Here are your Australian LIBOR rates: http://www.homefinance.nl/english/international-interest-rates/libor/libor-interest-rates-aud.asp Couple points in addition: Every major financial market has an established rates market at which banks are borrowing and lending among themselves. In fact such transactions are performed every single day in order to ... 2 well generally only the discrete bonds associated to the ends of the forward rates are modelled. to make these be martingales the drifts of the rates are chosen to make them driftless. for an extension to all bonds, see http://ssrn.com/abstract=1461285 2 Libor is indeed usually fixed in advance (and paid in arrears). Thus, in your example the first fixing date will be 2 business days before March 5th, and the second fixing date will be 2 business days before June 5th. Usually, therefore, the first fixing is already known when the swap is traded. You say that the Libor leg is paid semi-annually - that's not ... 2 You wrote Given this, what does the value of 1M LIBOR curve at 1Y point represent? It is a real number X such that: The following deal can be agreed today in the swap market: You will pay me the amount X (fixed in advance) one year from now, and in return I agree to pay you one year from now the amount Y equal to the 1 Month Libor Rate published at that ... 2 A 5 year AUD swap, for example, references a short term rate such as 3month BBSW. There is no such thing as 5 year BBSW or 5 year AUD Libor. The maturity of an interest rate swap is not the same thing as the maturity of its reference rate. Is that what you were asking? 1 yes it is put-call parity: long the caplet pays max(0; libor - K) short the floorlet pays -max(0; K-libor) add them up you always receive libor and pay K 1 Your P_I(t,T) is the formula for the so-called "pseudo" discount curve. It can be used to compute relevant LIBOR forward rates and LIBOR zero rates. The "true" discount curve is of course the OIS discount curve, which can be built independently of the LIBOR curve. 1 Unless the counterparty specifically bought the swap, then at inception the swap had a 0 value, i.e. the spread is that value which equates the two legs. Of course, it's usually bumped up (bank receiving) or down (bank paying) as the trader's profit. 1 Obviously a perfect forecast for interest rates is a bit hard to come by, such a thing would make the inventor quite a tidy sum. Broadly, the task you're seeking to accomplish falls under the banner of yield curve modeling, and there is a very substantial body of research in this area, including several good books. There are some canonical examples of ... 1 AUD LIBOR is no longer quoted. See list of fixes: https://www.theice.com/iba/libor AUD BBSW is quoted by prime AU banks and is based on the price of a discounted security while what was formerly the BBA AUD LIBOR was based on quotes by a different (but overlapping) set of rate contributors on a theoretical loan/depo. 1 For LMM I thing the Rebonato's book 2002 is a good reference. He has explained the condition of vol quotation that allow existence of calibration solution. LMM parameters and inputs are quite complexe, calibrator not work maybe caused by your implementation's bugs but not only data input. I think it is better if you calibrate virtually before true market ... 1 EDIT: I changed the answer to have it more on topic. Summary It boils down to Mark Joshi's answer. I wanted to add something more. Answer A probability measure Q1 and a numeraire N1(t) are associated if all prices expressed relative to N1 are martingales under Q1:$$\frac{price(t)}{N1(t)} = \mathbb{E}^{Q1} \left[ \left. \frac{price(T)}{N1(T)} \, ...

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Different measures have different properties. Using a particular measure may make it easy to derive an analytic formula since a rate is driftless. When performing Monte Carlo, the sign of the drifts changes with measure which affects convergence. There is also the problem in the terminal measure that the numeraire can get very small and so some paths can ...

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Glasserman on pg 166 has a very accessible introduction to LMM under spot and forward measures

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