# Tag Info

## New answers tagged swaps

2

A Basis swap is a broad category of swaps where you exchange one floating rate against another floating rate. Without knowing the specific rates involved it is difficult to say more. An OIS Swap is an Overnight Index Swap, where you exchange a fixed rate against a geometric average of the overnight rates for the tenor of the swap. For example if the ON rate ...

3

I think you're arriving at a value for a swap using 2 different expressions of the same thing because FX forward prices are calculated using spot rates and adding or subtracting forward points. The forward points for a currency pair express interest rate differentials between the 2 currencies in the pair. I think your question then moves from arriving at a ...

0

The standard convention is to use the next good day as the "payment day." I'd say generally speaking, the following two settings should produce identical cashflows: Maturity date of 6/20/2016 & roll day of 19. Maturity date of 6/19/2016 & roll day of 19 or unspecified.

4

Clearly, from a theoretical point of view, a varswap is a better way of capturing volatility change, since as mentioned by Mark Joshi a varswap has, by construction, a Vega that does not vary with the stock price. For a single option on the other hand the Vega is at maximum at a stock price $S^*$ roughly comparable to the strike price X and decays in a "bell ...

5

The vega of an option is very dependent on the spot price. The vega of a variance or volatility swap is not.

5

If you take Quantuple's stuff a little further, you can really see whether you're long skew. You can pretty easily see the dependence on convexity too (though it should be obvious that you're long convexity). So first off, we need some smile parametrisation that lets us easily control convexity and skew. I just went with a made up one; $$\mathrm{convexity} ... 5 As I've mentioned in a comment, it would be wrong to think that a variance swap specifically amounts to being "long skew". What you can say however is that, in the absence of jumps (i.e. in a pure diffusion framework, see here and here for further info), the fair variance strike K_{var} at which a variance swap with notional N and payoff$$ N \times ( \...

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