Questions tagged [interest-rate-swap]

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80 views

Methodology to build a Fed Funds curve post LIBOR cessation

With the transition from LIBOR to SOFR, what is the market standard for building a Fed Funds curve? In the "old days", I believe that one would use Fed Funds futures for the front-end (i.e. ...
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1answer
175 views

Market convention for building the front-end of the SOFR discounting curve

In SOFR Discount Curve Construction in Nov 2021, @dm63 does an excellent job describing the way to build the SOFR discount curve. A few questions: What is the market convention for building the ...
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1answer
171 views

USD swaps trading post LIBOR: the current state of the world (January 2022)

The USD interest rate swaps market has been transitioning from LIBOR to SOFR for some time. In the "old days" when swaps reset against LIBOR underlyings, there were a few "market ...
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1answer
104 views

VaR on Interest Rate Swaps

I am a newbie and was after a simple explanation on how VaR is calculated for a portfolio of IRS's.
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1answer
131 views

Market Convention to Price Interest Rate Swaps (post LIBOR transition)

Prior to the onset of the Global Financial Crisis in 2008, interest rate swaps were priced using a so-called "single curve framework". Under this framework, the LIBOR curve was used to ...
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1answer
36 views

Floating swap payoff with rate determined on current instead of previous date

I am attempting to determine the payoffs a modified swap, in which the floating payments at a time $T_k$ are made on the current date (i.e. $L(T_k,T_{k+1})\equiv L_{k+1}(T_k)$) rather than at the ...
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0answers
43 views

Which Model Should I Use for Pricing USD Interest Rate Caps (7, 10, 30 year maturities) on 1Month Rates?

I am trying to price USD interest rate caps on 1M rates (e.g., LIBOR, SOFR, etc.). The caps are designed to limit the exposure on non-callable USD Pay Float / Receive fixed positions in interest rate ...
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0answers
49 views

Definition / convention of statements receive 10s30s and boxes

I have a very practical question regarding the terminology of swap / rates trading. What is the exact definition of statements like receive 10s30s. I know that it is the spread between 30y and 10y ...
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56 views

interest rate swap schedules

Is there a source describing how the schedules(start, end, dcf, payment) involved in a basic IRS are computed? Depending on when the dates are adjusted, the schedules can be different. Thanks
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69 views

end-of-month or not for plain vanilla interest rate swap

Quick and hopefully simple question about a standard swap schedule. Let's say we have a plain vanilla 3y fix-flt interest rate swap with cpn-freq = 1, no stubs, in for example EUR. Start date: 2021-11-...
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70 views

Annualizing the pay frequency of underlying swaps when bootstrapping the zero curve?

Say I'm looking to bootstrap two zero curves based on two swap curves with different underlying currencies and, consequently, two different pay structures in the swap contracts. For example, say I ...
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1answer
309 views

SOFR Discount Curve Construction in Nov 2021

On July 29, 2021, the Alternative Reference Rates Committee (ARRC) formally recommended the forward-looking term rates based on SOFR published by the CME Group. CME currently publishes Term SOFR for ...
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107 views

DV01 formula for an interest rate swap using OIS discounting

I am looking for a formula / approximation to calculate the PV impact of shifting the par swap rate of an interest rate swap in the multicurve setting, e.g. of a swap on 6m LIBOR with OIS discounting. ...
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1answer
93 views

Advice for automating swap curve construction

Let me start by assuming a simple single curve framework, whereby we take input instruments (mm,fra,futures,swaps etc) and strip out a discount-factor curve. Modern implementations of this are usually ...
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1answer
134 views

Real rates expectations

What are the drivers of real rates? Nominal = real rates + breakevens breakeven = inflation expectations and what about real rates = ?
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1answer
119 views

How to measure Steepener/Flattener/Butterfly sensitivity? (in 01)

This seems like a simple concept but I'm a bit lost. How can I calculate the dollar value sensitivity for a yield curve slope or butterfly position? I understand how DV01 can be calculated, but it ...
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46 views

What makes the benefit of defaulted counterparty risk asymmetric in an interest swap?

On page 369 of Quantitative Risk Management (2015) by McNeil, Frey, and Embrechts, there is an interesting example that I do not quite understand. Suppose A makes a floating interest rate payment to B,...
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74 views

Bermudan Swaption Pricing via Least-Square Monte Carlo

I have some confusion regarding pricing a Bermudan Swaption using LSMC. Let's say the underlying swap has payment dates $T_0 < T_1 < \ldots < T_n$ and for simplicity, assuming the exercise ...
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85 views

Pricing an OIS referencing SONIA with fixing lag

I'm trying to price an Overnight Index Swap referencing SONIA. The swap will have a 5 day fixing lag (i.e using compounded SONIA over the current interest period but with the last rate set 5 days ...
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41 views

Local Evaluation Date in QuantLib

I am trying to construct a price history for swaps in QuantLib, i.e. to have a timeseries of daily prices for a given swap. I have my rates data on each day, but what I'm struggling with is the ...
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47 views

Business day convention SOFR swaps

I'm looking for the standard business day convention for SOFR swaps. So for a standard fixed vs SOFR swap with annual payments using ACT/360 on both legs, spot and payment date offset of 2 days each: ...
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2answers
130 views

IRS - sensitivity to estimation (projection, coupon) curve and discounting curve

The mark to market of an interest swap that is close to zero (e.g., at the swap's inception) has more sensitivity to which curve - the estimation (projection, coupon) curve or the discount curve? And ...
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105 views

How to compute IRS DV01?

Assume 50k notional and annual payments, entering a long position in a 5y interest rate swap will pay 50k * fixed rate (i.e. predetermined 5y swap rate which makes PV equal to zero) and receive 50k * ...
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1answer
51 views

How to resampling the risk of a specific tenor on a interest rate curve without replace the instrument?

For example, suppose we have an interest rate curve bootstrapped from multiple instruments, at the short end, we used eurodollar future (up to 2Y), at the longer end, we used interest rate swap (3Y to ...
2
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2answers
172 views

How to account for the credit spread ( e.g. LIBOR + 2%) when using the Multicurve Methodology in valuing a Swap

When valuing an Interest rate swap, counterparties will typically issue the contract at a Libor + credit premium, e.g. Libor +2%. When valuing a swap, we require a LIBOR forward curve and Discounting ...
0
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1answer
87 views

Is it possible to price a plain vanilla interest rate swap in Python and simulate the price using Hull White 1 Factor Model simultaneously?

I am trying to price plain vanilla interest rate swap (IRS) using QuantLib. What I am trying to do is to generate a path of simulated IRS price by simulating the interest rates using HW 1 Factor model....
3
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1answer
104 views

Swap Schedule Question

Suppose we are seeking to value two swaps, with tenors of 2Y and 3Y with start dates on 30 Aug 2021 and semi-annual payments. I want to calculate the schedule of payments on the fixed leg. Consider ...
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1answer
101 views

Using a Swap curve to price Interest rate Swaps

Say we have a 3-m LIBOR IRS (interest rate swap) with quarterly fixed payments (2 year contract), and we want to value this contract (after say 6 months has passed, i.e. there remain 1.5 years to ...
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3answers
292 views

Convexity Adjustment of Daily Compounded Swap under Hull-White Model

I am working on a problem that deals OIS daily compounded swap under Hull-White 1-factor model. I am struggling with pricing the floating leg, on a delayed payment date: $E^{T^p}_t[\prod_{i=0}^{n-1} (...
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2answers
111 views

Rationale for the CMS Spread and CMS Rate as being underlying for Dual Range Accrual?

I was searching on the products issued by the banks to retail investors, and saw some of the Dual Range Accruals having underlying as USD CMS 30Y - 2Y, and USD CMS 10Y, each having low barrier and ...
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1answer
131 views

Specify fixing days for floating leg in Interest Rate Swap valuation using QuantLib Python

I am trying to price an Interest Rate Swap using QuantLib Python, and everything seems to be fine. However, I can't seem to understand where I can specify the number of fixing days. Below are my codes....
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1answer
114 views

Constructing a USD LIBOR curve

USD_LIBOR rates are only published up to 12 months. how would you approach constructing the curve to at least a 30-year tenor, to price for example an interest rate swap. I have heard that swaps can ...
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1answer
121 views

How to value a long term interest rate swap if the floating leg is USD-LIBOR

To value an IRS, you require a spot/zero curve. If I am correct this zero curve will be the USD-LIBOR curve. However, if you have e.g. a 10-year swap that you are trying to value 2 months into the ...
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87 views

Estimating SOFR daily rate from a given curve

Goodday. May i know how can i estimate those fixing rate in the yellow cell, with the curve given on the left? Would my step below work 1.perform linear interpolation to find the rate e.g. the fixing ...
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1answer
100 views

NPV of Interest Rate Swap not coming to be 0 at initiation

I am using the iPython notebook published by Gouthaman Balaraman at [http://gouthamanbalaraman.com/blog/interest-rate-swap-quantlib-python.html][1] This is to value the Interest Rate Swap. I am ...
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3answers
205 views

Curve Trades - Forward Swap vs Swap(Payer and Receiver)

let's say I want to do a steepening trade. What would be the difference between entering a swap starting in 5 years and lasting for 5 years (5y5y) entering a payer swap with a tenor of 10 years and ...
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0answers
38 views

Hull-White-1F swaption price Parameters using tf_quant_finance

Sorry for this rather general question but im new in this field. I'm asked to model the Expected Expsoure of an interest rate swap. The Short Rate should be modelled via a 1factor Hull-White model: $...
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38 views

How to calculate net exposure on a Interest Rate Swap (and on derivatives in General)?

I would like to know how to measure Exposure on swaps (IRS, TRS...) in general . Example, if a party A has a OTC position of 100 million USD in IRS with party B, is party A exposure = 100 million ...
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57 views

forward LIBOR curve bootstrapping

how can i construct a forward libor curve, which produces forward LIBOR rates, with the given data/info: par rates of a set of OIS fixed 6M LIBOR rate par rates of a set of Swaps which the underlying ...
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103 views

How to simulate interest rate index fixings?

When calculating the PV of an interest rate derivative (IRD) that is linked to a rate index $-$ e.g. an interest rate swap $-$ we usually require the actual, or projected, index fixings in order to ...
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13 views

How to compute CME IRS daily close quote from ['Zero', 'DF'] in CME archieved IRS files?

I am looking at CME IRS data. CME archived irs data has following format: ...
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1answer
693 views

Quick rule of thumb for DV01 and CS01 calculations

If someone tells me there is a IRS and a CDS both with 10M notional and 5y maturity, is there a reliable quick calculation that I could easily do mentally to approximately calculate their ...
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1answer
189 views

Duration of Floating rate bond

I have read in several places that the duration of a floating rate bond is simply the time until next coupon payment, because the upcoming coupon payments are not known. I have 2 questions here: Why ...
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102 views

Plotting a CSA curve in QuantLib

IRS under a CSA Let's consider an example of Interest Rate Swap under a CSA. To calculate discount factors that can be used to discount cashflows in one currency, $C_{1}$, collateralized in another ...
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2answers
119 views

Compute forward swap rate from spot swap rate?

I am pretty new to interest rate swap and this question might sound silly. Why does 3y2y (3yr forward and 2yr tenor) swap rate roughly equal to (5*5y swap - 3*3y swap) / (5-3)? Any explanation would ...
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1answer
736 views

Can an IRS have a different payment calendar by leg?

I have to model IRS in an IT system and I have a question related to this modeling. Can an IRS have a different payment calendar by leg ? Thanks and regards
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0answers
97 views

Bootstrapping EURIBOR curve

I’m trying to bootstrap a 1m, 3m and 6m euribor curve. The data I’m using is 3m Euribor swaps, 1m/3m basis spreads and 3m/6m basis spreads. I’ve successfully used quantlib to bootstrap a 3m curve but ...
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2answers
223 views

SOFR Transition

I have few doubts regarding transition from IBOR to SOFR rates. How will the method of calculating/estimating curve rates change after changing to SOFR? Will there be any change in valuation ...
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1answer
94 views

Collateral on Derivative Position

Let say a bank enters an Interest rate swap with a counter-party, and this trade is collateralised. I have heard about a specific term in such collateral agreement, wherein it states that the interest ...
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91 views

Price of Interest Rate Swap (Float-Float)

Let say I have 2 Forward start Float-Float Interest Rate Swaps starting in 1 year and 2 years and both have 5 years of life. I know the prices of both these swaps say $P_1$ and $P_2$ Given this ...

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