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Questions tagged [discounting]

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1answer
1k views

Which discount curve to use when valuing multi currency swaps

I've been looking around the internet but cannot find the exact answer to my question. Normally when valuing an IRS one uses eonia (for eur swaps) to discount the cashflows. Let's imagine I have a ...
0
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1answer
184 views

example regarding zero coupon bonds

This example is from Interest Rate Models: an Infinite Dimensional Stochastic Analysis Perspective by Carmona, René, Tehranchi, M R. I am wondering if the calculation is correct?, he says ...
-1
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1answer
150 views

Pricing of Interest rate swap with start ex. 01/06/2015 to 03/06/2015 - 2 extra days? Change discount factor and fixed payments?

I hope you can help me. So let say we have an interest rate swap, with the following characteristic: Start in 30/06/2015. End in 02/07/2019 It has fixed payment every year, and floating every ...
3
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2answers
186 views

expected change in value of a derivative in a multicurve framework

I'm reading Piterbarg paper, "Funding beyond discounting: collateral agreements and derivatives pricing." and have a question about equation $(6)$. There he says that for a derivative we have $$E_t[...
2
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1answer
356 views

Discount factor taking into account yield curve shape

I have always been told that the discount factor formula is just: $$ DF(T) = \frac{1}{(1+L_{t_0})^T} $$ where $L_{t_0}$ is the LIBOR rate on one period (the first one I guess) and $T$ the number of ...
2
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1answer
171 views

Discount factor

Suppose we have : $r$ - zero coupon rate, constant over time, $n$ - a number of years (an integer), $\theta$ - a fraction of a year $(\theta < 1)$ , calculated with the relevant day count ...
0
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2answers
151 views

Does a 1Y swap depend on zero curve beyond the 1Y point?

When using market swap rates to calibrate a discount curve, it seems that the PV of a 1Y swap depends on the zero curve at points beyond the 1Y mark. For example, a USD 1Y swap with trade date today (...
2
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0answers
54 views

Can I use these rates for ACT/360 discounting?

I have calculated forward rates like this: $r_{t_1,t_2} = \left(\frac{(1+r_2)^{d_2}}{(1+r_1)^{d_1}}\right)^{\frac{1}{d_2-d_1}} - 1 $ I want to find the discount factors for these forward, with ACT/...
2
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1answer
251 views

Dual discounted forward curve

I was wondering how to calculate the forward rates based on OIS discounting for the half year terms. I know how to do this for the full year terms -> just making sure that the two legs are equal to ...
1
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2answers
125 views

Why to 2 methods to calculate bond price with semi annual return give different answers?

I am confused as 2 methods give different answers. The difference lies in the "to the power" numbers for discounting. Example: 2 year semi annual bond (4 periods), $1m annual Coupon Payment, 5% Yield ...
-1
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1answer
215 views

Finding Discount Bond Matrix in LMM Model C++

I am working on a 1 Factor Libor Market Model (LMM) in C++ and I working my implementation of the formula to find my Discount Bond matrix via the following formula: In the case of my model alpha is ...
3
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3answers
884 views

Two different ways of pricing that leads to two answers

This question might appear trivial to many (considering the questions on this site), but I think it reflects something fundamental that I am missing. To keep things simple, assume everyone is risk-...
-1
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1answer
58 views

Discounting factor depends on [closed]

Does discounting factor only depends on issuer, or it also depends on structure of payments ( i.e. fixed or float)? Thank you in advance.
1
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1answer
2k views

What is the proper discounting of PIK and non-compounding bullet loans?

This question pertains to two types of loans. Pay-in-kind (PIK) and bullet loans with quarterly payments. 1. PIK Loans A PIK loan is a loan where periodic interest is NOT paid, but added to the ...
6
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1answer
2k views

Why are multiple custom curves (swap) built for one desk?

Currently in a journey of learning and getting my hands a bit dirty with Interest Rate Swaps. Why there are multiple customized curves built by many even within one desk? For e.g. Short Rates desk ...
4
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1answer
4k views

What exactly is the OIS Black VOL?

While poking around in Bloomberg I stumbled upon the following data set: EUR SWPT BVOL OIS for various maturities. Obviously OIS must suggest OIS-discounting but how is it related to the Black-...