Questions tagged [interest-rate-swap]
The interest-rate-swap tag has no usage guidance.
3
votes
1answer
59 views
IMM Swaps - Accrual & Fixing Schedule
I am wondering how accrual periods & reset dates on Quarterly-IMM swaps are different to normal swaps (in terms of conventions). For example:
Normal Swap:
...
1
vote
1answer
42 views
Port a model dependent swaption sensitivity to a new model
I have a short rate model in which I have (among others) the following metric (for leverages) for a swaption : $$L = \frac{\frac{\partial}{\partial r}V_0^{\textrm{Swaption}}}{\frac{\partial}{\partial ...
0
votes
0answers
76 views
Curve Building + Swap Pricing [duplicate]
Assume Swap means a USD Swap with standard conventions (semi-annual fixed payments and quarterly floating payments, etc).
3
votes
1answer
173 views
Trading Jargon - Interest Rate Swaps / Bond Trading
I was going through some reports but having hard time with the jargon. When I google them online I came across the page: http://volcurve.blogspot.com/2007/10/carry-and-roll-down-back-to-basics.html
...
0
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0answers
91 views
Interview question on interest rate spread trade
Consider this interview question:
Tell me how you'd construct a risk neutral cross country trade on the 2 year – 10 year interest rate spread in Germany and the U.S.
What does "risk neutral" mean ...
-1
votes
1answer
146 views
Bloomberg SWPM: Day count to calculate discount factor for US0003M
I'm trying to replicate price I get for CCIRS in SWPM. This is USD3m float vs RUB 1Y. Second leg doesn't matter for my question.
Suppose today is 7th of Jan 2019, deal date. Settlement will happen on ...
1
vote
1answer
140 views
Basic question on USD Interest Rate Swap
I am just starting out as a rates and derivatives trader.
Can someone please recommend some books for trading USD interest rate swaps (including risk management)?
Any additional guidance would be ...
2
votes
1answer
101 views
Swaption annuity factor
In H. Corb's book about interest rate swaps and oder derivatives, the present value of an T into n payer swaption is given via
$A\sigma\sqrt{T}\left[\frac{1}{\sqrt{2\pi}}e^{-\frac{d^2}{2}}+d\,\...
1
vote
1answer
54 views
Arbitrage on Libor and swap market
I must be wrong here, but still want to know where I am wrong. I found the data of Libor rate and swap rate from this link: http://www.interestrateswapstoday.com/libor-rates.html
At the time, I read
...
1
vote
0answers
18 views
Quantitative impact of Dodd-Frank Act on risk management
The US Dodd-Frank Act (DFA) introduced mandatory central clearing of standard (e.g. plain vanilla) swaps for big financial institutions in the US in 2013.
It might be a broad question but: what have ...
2
votes
1answer
153 views
Black and Normal Model for Caplet using Python
I am able to Price Caplet using Black 76 model in Python. However, I am unable to price the same with Normal Model. Can anyone suggest what is missing ?
I am valuing caplet that caps interest rate on ...
1
vote
1answer
126 views
Why are interest rate swaps the most popular interest rate derivatives [closed]
Interest rate swaps are the most popular interest rate derivatives. Is there a reason why they are more popular than other interest rate derivatives (e.g. forwards, futures)? Is it because they were ...
2
votes
1answer
97 views
How are Interest Rate Swaps Quoted
Im not sure if this is the right place to ask this question or whether Personal Finance & Money would be a better place. Basically I know that initially interest rate swaps are quoted based on the ...
-1
votes
1answer
374 views
Swap Curve and Forward Libor Rates
How does the (interest rate) swap curve incorporate forward libor expectations?
1
vote
3answers
77 views
heding bond risk with swap
How would a bond trader hedge his/her interest rate risk? A nature way is to hedge it with interest rate swap. Is this a choice in practice ? is their any risks associating with this hedging strategy. ...
2
votes
1answer
167 views
Hedging Ratios for Fixed Income Instruments
If you buy a corporate bond and you want to hedge the interest rate risk, how would you know how many interest rate futures/swaps to hedge the bond with?
The same with an MBS security, if you want to ...
0
votes
1answer
572 views
Bootstrap daily OIS forward rate
Can someone please show me how to derive the daily OIS forward rate in a OIS-fixed rate swap?
For example, if price a paying fixed rate/receiving OIS swap in Bloomberg SWPM, Bloomberg will be able ...
1
vote
0answers
199 views
Calculate tenor wise DV01 of a Swap in Quantlib Python, i.e. Key-rate Duration
Is there a way I can get DV01 breakup of a Swap across different tenors of the deal in Quantlib-Python. The question asked here, follows the basic method of re-valuing the swap by shifting the curve ...
3
votes
1answer
146 views
QuantLib in Python : Execution time with OISRateHelper compared to Swap/Deposit RateHelper
I have been working on valuation of interest rate swaps using dual curve bootstrapping. And for this I use OISRateHelper to create a discount term structure using OIS rates. The entire code below :
<...
1
vote
2answers
997 views
Mid-curve swaption
I would like to know how the mid-curve swaption could inform us about forward volatility.
In my understanding it is a swaption on a forward starting swap.
Let us say the midcurve swaption expires ...
1
vote
0answers
232 views
Why is the annuity factor proportional to the CV01?
For an asset with par amount of one unit (with a semiannual payment regime) we have
$$\frac{C(T)}{2}\sum_{t=1}^{2T}d\Big(\frac{t}{2}\Big) + d(T) = 1$$ $$\implies\frac{C(T)}{2}A(T) + d(T) = 1,$$
...
2
votes
2answers
84 views
Turning an amortising swaption into a normal swaption
Is there a way to enter a trading strategy in which the notional of the cashflows of an amortising swaption become all the same?
For example, imagine the notional for the first four cashflows of an ...
1
vote
2answers
558 views
bootstrapping a basis curve to get a forward basis curve
suppose i have a trade whose payoff underlying is 3m libor minus 1m libor.
the standard approach is to bootstrap seperately 2 projection curves: a) a 3m projection curve, b) a 1m proj curve.
however, ...
-1
votes
1answer
208 views
Bermudan Swaptions
Can someone explain, in layman's terms, the mechanics behind Bermudan Swapttions ( without having recourse to pricing models )?
Why are they popular? when are they used ?
How are they hedged i.e ...
0
votes
1answer
53 views
What are advantages of expressing swaps this way?
On page 420 of Bailey's "The Economics of Financial Markets" textbook there is an example:
"For example, suppose that [in a plain vanilla interest rate swap] the company agrees to pay 9.25 per cent ...
0
votes
1answer
71 views
Par Rate on an ongoing swap vs a trade startig at spot
Hope you can help me with the following question:
There are two swaps:
- LIBOR 3M vs. fixed 1Y swap, started in the past, has maturity in the future at time X,
- LIBOR 3M vs. fixed 1Y swap, starts ...
0
votes
1answer
1k views
Mandatory Break clause
Regarding mandatory break clause on Interest rate swaps can someone explain how pricing works with an example. Is it compulsory to terminate the swap or novate on the exercise date. I have seen cases ...
0
votes
1answer
67 views
Libor Swap Rates
In a 5 year Libor Swap, say fixed vs. 3 months Libor, what is the credit risk reflected by the fixed leg ? (I'm ignoring counterparty credit risk). Would the fixed leg reflect 3 month Libor quoting ...
1
vote
1answer
94 views
Valuing a cross currency basis swap using a third currency as a collateral
Suppose India and South Africa goes into a cross currency basis swap. But the collateral is specified upon USD. How does one value this type of swaps? Or is it even available directly on the markets?
0
votes
1answer
285 views
Hedging amortising interest rate swap with vanilla swaps
Is it possible to hedge an amortising interest rate swap (linearly decreasing notional) with a series of vanilla interest rate swaps? With the amortising swap originated today at par rate and the ...
2
votes
1answer
231 views
How do swap dealers make money from trading cancellable swap?
A fixed-rate payer (e.g. a swap dealer) of a cancellable swap pays more interest than he receives because he has the right to terminate the swap after a certain time if rates fall. What are the ...
0
votes
1answer
81 views
What's the most direct hedge on rising 12-month LIBOR rate for retail investors?
What is the most direct mechanism available to retail investors to profit from (i.e. hedge against) a future increase in the 12-month LIBOR rate?
e.g. The 12-month LIBOR rate is 2.29% as of 2/1/2018. ...
1
vote
1answer
273 views
Bootstrapping Quantlib RateHelper Python/C++ [closed]
I am pretty new in the Quant areaa and using Quantlib. I found the pretty good introductions concerning bootstrapping in the book QuantLib Python Cookbook by Luigi Ballabio. I wanted to understand the ...
2
votes
2answers
152 views
Transform a 3M FRA Rate to a 6M FRA Rate
I have a question whether it is possible to transform 3M FRA rates to 6M FRA rates without having any spreads available. Let's give an example:
FRA 3M:
FRA 1x4
FRA 2x5
FRA 3x6
FRA 4x7
FRA 5x8
FRA ...
1
vote
1answer
2k views
Convert 3M rates to 6M rates using Basis Swaps (3M vs 6M)
How can I convert a 6M Libor rate e.g. 1Y Tenor to a 3M Libor rate using a basis swap 3M vs. 6M? I wanted to know the math and also an example would be great.
Update:
Example:
...
5
votes
1answer
1k views
Use QuantLib Python to calculate Swap DV01
I would want to use QuantLib Python to calculate DV01 of an interest rate swap.
Initially I was thinking of calculating the fixed leg DV01 and floating leg DV01 separately, then add both legs DV01 ...
0
votes
2answers
713 views
In curve building: How to calculate interest rate (discount factor) for period before first known effective date
I am building a curve using par swaps rates. For example, I have the following two semi-annual swaps for input
Duration start end rate
1year 14-Nov-2011 14-Nov-2012 ...
0
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0answers
52 views
Does MV of IRS depend on inflation?
Question: At time=0 company A enters an 3y interest rate swap with a bank, where A recieves floating and pays fixed. After 1y, at t=1, the inflation changes from 1% to 3% does this affect the MV of ...
1
vote
1answer
256 views
Using PCA model to capture Risk on a box trade on Swap spread
I have PCA models to capture Risk for Swaps trading
I have a question regarding a multi-leg package which has 4 legs (box spread).
Typically, a box spread is a switch between two Swap Spread, where ...
0
votes
1answer
574 views
Bootstrapping the spot curve based on swaps
I am struggling to understand bootstrapping the spot curve based on euroswaps. These contracts have a fixed leg paying an annual rate and a variable leg paying either euribor 3m 4 times a year or ...
1
vote
2answers
333 views
FX risk of basis swap in foreign currencies
As an US investor, if I enter a basis swap in a foreign currency (say Euribor-Eonia basis in EUR), and book my trade using USD. I must have some sort of FX risk, right?
How do I hedge such risk? I'd ...
0
votes
1answer
815 views
Collateralized Interest Rate Swap
I am struggeling with the wording "Collateralized" IRS and try to get an understanding out of it based on an example. Especially what it means that in the multi curve models the expectations are ...
2
votes
1answer
624 views
Calculating market value of a vanilla swap at a later date in QuantLib
I am following the cookbook example for pricing a Vanilla Swap in QuantLib Python, given here.
Now let's assume that a week passed, and we are trying to calculate the mark to market value of the ...
3
votes
3answers
6k views
Carry calculation on an interest rate swap
I was hoping that I can get help on a simple yet not so straight forward topic :
Looking at valuing the costs of holding an IRS in the books this would entail marketed-to-market due to price ...
1
vote
2answers
503 views
Cross Currency Basis Swap
I understand that there exist a cross Currency Basis between euro and dollar of about 35 bps, which in my understanding can be arbitraged out by following principle of interest rate parity. However, ...
-2
votes
1answer
402 views
Quantlib: Interest rate swap starting before valuation date
I am trying to evaluate an interest rate swap starting before the valuation date with an amortizing schedule(in Python).
I am using your (i.e. Quantilb) codes but i can't figure out how to solve my ...
0
votes
2answers
535 views
Swap Rates Below LIBOR?
In Section 7.5 of Hull 9/e, he states,
Note that 5-year swap rates are less than 5-year AA [LIBOR] borrowing rates
and gives a creditworthiness argument as to why this is so. However, on the next ...
0
votes
1answer
561 views
Valuing the floating leg of a swap
Let $P_{t}(\pi)$ be the price at time t of a zero coupon bond with time to maturity $\pi$. Furthermore, let $f_{t}(\pi_1, \pi_2)$ be the forward rate that is earned over the time period $[\pi_1, \pi_2]...
1
vote
1answer
109 views
Why is there no carry if interest rates follow projected forward rates?
"Carry is a function of the shape of the interest rate curve. When the curve is upwardly sloping (ie, longer
dated rates are higher than shorter rates, as they are currently), then the market is ...
1
vote
1answer
2k views
DV01 of Interest rate swap
I am a beginner in financial risk management and recently I have been studying the plain vanilla interest rate swap.
I came across several articles talking about DV01 of interest rate swap as follow.
...
