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May
27
comment Why are multiple custom curves (swap) built for one desk?
I have gone through two tutorials 1. using Libor short curve + par swap rates. 2. using OIS curve. BUT, both tutorials are following the classical steps. 1. Bootstrap to build DFC 2. Build Zero-curve 3. Derive Fwd Rates 4. Calculate cashflows for floating leg. So what stpes are not required when using OIS in current -terms... (of what you meant, there's no need to bother about DFC)?
May
23
comment Need advice on finding forward spot rates
@AndreyTaptunov your embedded link to Bionic Turtle is no longer available. I am not sure if this is as same as his video tutoril on Youtube. I still find it hard to apply the concept to a question I have and most probably I will post it.
May
23
comment Why are multiple custom curves (swap) built for one desk?
What are you referring by "more context"? Further can you define the jargon DFC (discount factor curve perhaps)? Quoting: The difference is that you don't have to make it into a DFC any more, and that you may only use 3m-fixing products together or 1m-fixing products. This is not clear to me.., >.< Does it mean steps for boostrapping for stripping off forward rates to build swap curve goes down by 1 step?
May
23
comment Why are multiple custom curves (swap) built for one desk?
Aren't the forecasting fixing rates are infact the forward rates? Because that's what we used to derive the future cashflows of floating leg?
May
23
comment Why are multiple custom curves (swap) built for one desk?
Learning via melo-drama can't get any better : quoting mantle of risk-free rate proxy was passed on to a family of Overnight fixings, called Sonia, Eonia and -ahem- FedFundEffective... Coming back to the main intention of my question, sometime back I used this as my first tutorial with some background reading based on CFA L1, Fabozzi, Tuckman and Derivatives Demystified. Those materials helped alot in order to understand the basic concepts.
May
23
comment Why is USD LIBOR used for USD denominated securities?
+1 and accepted! Quoting: It is the curves that result from adding certain spreads on top of libor curves that matter. : This is exactly what I am after as I am on the exercises for curve construction in the context of IRS. I have couple of question on forward rates and IR relationship and some jargons which are not cleared by online materials. I am on Fabozzi's FI and Tuckman's FI books. I hope to get in touch with your great knowledge and insights.
May
23
comment Why is USD LIBOR used for USD denominated securities?
Awesome insights and "LIE-bor-ed"! Well, when you said fed-fund target rate and b, are you reffering to BBA or banks by b? Could the poor credibility of Libor has infact given momentum to modern customized rate curves used in banks' FI/Credit/MM desks?
May
23
comment Why is USD LIBOR used for USD denominated securities?
Clarified & European banks are rich. I didn't not mean UK in the sense by London. Well I must correct the question as I was pointing at Europe. However the main underlying doubt was about using rates that are not based on the market/country of domicile of these interst rates/bond securities.
May
23
comment Why is USD LIBOR used for USD denominated securities?
@quantycuenta a one liner wouldn't satify me - unless the one liner has a calculation/formula that could can be plugged in with numbers to make sense. Not to mention the Libor scandal
May
22
comment how to derive yield curve from interest rate swap?
@PhilH when you said "To price an instrument, you use your Libor curve to estimate the Libor fixing, and your funding curve to calculate NPV." Does it mean, your own customized/constructed libor curve? And fundig curve refers to your own swap curve? Can you please share what are we using to build each libor and funding curve in your point?
May
22
comment how to derive yield curve from interest rate swap?
Conceptually above may be correct. And hint me if I am "believing" wrong concept. Market wise, above may be no longer in practice but improvised versions.
May
22
comment how to derive yield curve from interest rate swap?
I am not a quant. I am still/just learning about IRS recently. My question was why/how forward rates are used to calculate Interest Rate Swap? I was told that we need to build the swap curve before we try to value floating leg of an IRS. The main reason being, at the start of the IRS contract we do not have realistic LIBOR rates for the entire term and to calculate all the cashflows. Thus we use zero-rate curve derived from yields of defined/liquid securities to build swap curve (bootstrapping). Then use the rates from each tenor in Swap curve to value the cashflows of IRS floating leg.
May
22
comment Why does Futures contract credit and debit a position daily, if it has “locked” the price?
@MattWolf I am referring couple of materials and that's why I these questions. I have one questions though. At the end of the contract, are both parties of future's contract become winners regardless of the underlying asset's market price? Are both parites hedged?
May
22
comment What is Prompt Date Structure?
It was a matter of how a built in market data API (vastly used by traders) handles LMEX futures prompt date structures. I am trying to digging in for more info - as of now I can't find the underlying history of the client's query. Nonetheless, I will get in touch with you. If you don't mind - I keep the question open (to say not marking the answer).
May
16
comment What is Prompt Date Structure?
+1 for answering in the first place. Quoting: If you are in Asia trading nn LME you have to follow LME rules. It does not matter where you are - what matters is where you are trading. Assuming Japan has a holiday on a Wednesday - which is also a prompt date of a contract the particular trader is holding. So from Japan & UK trading calendars' perspective, how can he do a merged (a two country specific) calendar day counts for his LME contracts - so he can keept a track and will not mess things out due to local (Japan holidays) or vise versa.
May
14
comment Why does Futures contract credit and debit a position daily, if it has “locked” the price?
Thanks for the efforts on explaining things to me. I upvoted your answer.
May
14
comment Why does Futures contract credit and debit a position daily, if it has “locked” the price?
@MattWolf I read a passage about Profit & Loss - Cash settlement in this link. It gave me some sense. Thanks to both of you who really put effort to make things vissible for me. I have Derivatives Demystified to get me going for basics. I upvoted and accepted your answer as it gave me lots of insights.
May
14
comment Why does Futures contract credit and debit a position daily, if it has “locked” the price?
@RRG I got the point that notional value or full contract doesn't get settled at one go. MTM is essential. And I understand why MTM is important in terms of spot positions/their margins. But I don't understand why derivatives like a future with a locked-price has to be MTM daily, ofcourse with regards to current market price. I just can't make sense to it yet. Because I am hedging against market price fluctuations using a futures contract... It may take time - I will read and do more calculations. Or else I might just have to take theory as it is for now.
May
14
comment Why does Futures contract credit and debit a position daily, if it has “locked” the price?
3. Anyone else (speculators, arbitrageures, other traders apart from hedgers) who buys the futures contract will be interested in making a buck out of a futures contract and then roll it over. In this 3rd case I understand the need for daily settlement. However I still have to read alot more to see the clear mechanics of why current market price of underlying is involved in daily settlement instead of being a fraction of locked-future's price.
May
14
comment Why does Futures contract credit and debit a position daily, if it has “locked” the price?
In this scenario - it looks like there's counter-party risk. Therefore both parties may be required to settle a bit of contract value based on the days passed on the contract. However I am still doubtful why current market price has to come in between it when a price is already locked, all Farmer and Baker have to pay is a fraction of locked price. In the event agreed goods are delivered by Farmer, he will be given back his settlements he did over the 1 year of time along the contract agreed price paid by buyer - the Baker.