in the place I work I've noticed that for asset class Interest Rate Swaps, tenor bucketing takes place. Example as follow:

  • IRS with maturity 2 month being bucketed into a "3 month tenor bucket"

Page 32878 of Federal Register speaks about it as well: https://books.google.com.ar/books?id=vJ9D8jDiXjoC&pg=PA32879&lpg=PA32879&dq=bucketing+tenors&source=bl&ots=nSlabnT3pJ&sig=ACfU3U2vqAsc9K9MebJlIf-i-pDK62AI6g&hl=es-419&sa=X&ved=2ahUKEwifvYHX28_nAhUhFLkGHXkxCMcQ6AEwAnoECAYQAQ#v=onepage&q=bucketing%20tenors&f=false

What is a logical reasoning to think this is acceptable?


One possible reasoning is to group the underlying risk into similar categories.

You could have 3m, 2y, 5y, 10y, 30y,... No written rule here. Different banks or traders may like to group the tenors in different ways.

For example, the 4y and 5y swap will most likely always move very closely so you can group them together and look at your risk by buckets.

Check out this post for an example of calculating tenor wise DV01. After having your portfolio risk separated by tenor you can group them to have a better view of your risk.


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