Questions tagged [interest-rate-swap]
An interest rate swap is a financial derivative where two parties exchange interest payments on a specified notional principal over a set period. One party pays a fixed rate, while the other pays a floating rate tied to a reference rate (e.g., LIBOR). These swaps help manage interest rate risk, hedge against rate fluctuations, and enable speculation on future rate changes.
389 questions
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Why do floating legs have zero delta risk?
I am puzzled as to why floating coupon legs do not have a risk to the interest rate to which they are indexed. Consider a quarterly SOFR floating leg (imagine it is part of a float vs. float cross-...
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IRS and Govvie curves
This question has been bugging me:
Can a liquid IRS curve exist without a liquid government bond curve in a given currency?
Simple answer is yes, of course, why not. An IRS is just a swap of IOUs, you ...
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Relationship Between Forward Starting Swap Rates and Same-Tenor Forward Rates
New to all this. I'm playing around with a very basic swap pricer (in Excel, whose only input is the swap rate curve), and I noticed that although the 2y2y forward rate $f_{2,4}=\left(\frac{DF_2}{DF_4}...
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Intuition for convexity adjustment for year on year inflation swaps
I am trying to understand the intuition behind why a convexity adjustment is required when calculating the YoY rate on inflation swaps.
(Assume no lags for simplicity). The current inflation index is ...
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Nomenclature for Swap Spreads
If one is flattening 5s10s swap curve ( Paying 5y swap / Receiving 10y swap) and then hedges by steepening 5s10s Tsy curve ( Buying 5s / Selling 10s) which is equivalent to Buying 5y spreads and ...
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How is future-starting swap PnL decomposed?
So I understand that carry is simply the cost of holding a trade (say for this example, you receive the 10Y rate), and is a fixed known quantity not based on any assumptions (carry = the difference in ...
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Backtesting an Interest Rate Swap Strategy
I'm trying to value a forward starting interest rate swap and calculate the PnL of my trade. Say these are the zero rates:
On day T
Year
Rate
1
1.1
2
1.3
3
1.5
On day T+1
Year
Rate
1
1.08
2
1....
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Expected vs realized PNL from an interest rate swap [duplicate]
I've been looking into carry and rolldown PNL, and I'm struggling to understand how to backtest the actual carry PNL, as opposed to what is expected. I've seen some books merge carry and rolldown into ...
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Curve construction and convexity adjustment
I am trying to understand better how to build the front end of the curve.
For SOFR to construct the front end of the curve we can use all the 1 Month SOFR Futures and the 3 Month SOFR futures. Also $\...
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Estimate swap rates correlation in absence of spread options
Any suggestions / pointers on how to estimate swap rates correlation in absence of spread options? Is it feasible to work it out with the correlation of forwards coming from the intersection of ...
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30 year swap yield vs the 30 year government bond yield? [duplicate]
I'm using bloomberg and see that the 30 year gov bond yield (around 4.4) is different from the 30 year sofr IRS (which is around 3.6).
Don't both of these measures represent annualized rate that I ...
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Mid price for IRS SOFR
I’m trying to understand how market-makers derive the mid price for IRS SOFR swaps, particularly since there are no visible order books for these instruments (as far as I know).
From what I gather, ...
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DepositRateHelper vs SwapRateHelper vs FraRateHelper in QuantLib
I'm new to QuantLib and am trying to build a term structure for a vanilla IRS. I understand that QuantLib provides several helper functions like DepositRateHelper, <...
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Static/Dynamic Replication of Range Accrual and TARF?
I am trying to understand how one can replicate (approximately, if not entirely) the pay off for a Range accrual note and FX TARF? There is generic literature, which refers Range Accrual as a series ...
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why is z spread and asw spread similar when cash price is around par?
I break down my questions to below two sub questions
based on my understanding, asw spread is the spread added to the floating leg in the interest rate swap so that the present value of the floating ...
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How do you map bond RepFlows into forward swap RepFlows?
RepFlows
Practically speaking, a RepFlow is a vectorised representation of the cash flows from investing in a cash instrument that can be used for modelling.
For example, an investment of £1 today (...
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FX modelling in the real-world measure, $\mathbb{P}$ and its correlation to indices
So I am looking to model FX pairs in the real world measure $\mathbb{P}$ and their relationship to indices. From what I understand, if we have an FX, say EURUSD, the price will trend with the forward ...
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Seeking carry on the swap curve
I am considering the carry profile of a 3M forward 5s/30s swap curve steepener in a pre-easing environment (pre fed rate cut). Basically, in 3 months, I will enter into two different swaps:
(1) A swap ...
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In rateslib curve construction, how to control the jump size in step daily forward (log_linear), when i have 2 nodes on 1 instrument?
I have recently been trying to build a SOFR curve using SOFR 3 month futures. The issue I am facing is that when constructing a SOFR curve in the short-end, market convention is to use step forward in ...
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Which Discount Rate when Valuing Interest Rate Swaps as Forward Rate Agreements
Quick question about interest rate swaps and Forward Rate Agreements (FRAs). In Hull Chapter 4 (Interest Rates), to value an FRA he constructs the following portfolio:
Position 1 (FRA to receive $R_K$ ...
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DV01 of Cross Currency Swap [duplicate]
I'm trying to calculate DV01 of USD - KRW cross currency swap.
Curve building process for swap was as following:
Generate USD discount curve which makes PV of market observable USD IRS become zero (...
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How to convert 3M IRS rate to 6M IRS rate without using basis swap?
I have a spot curve where the front-end points (1Y, 2Y) have a fixed/float frequency of 3M3M, while the rest of the points are 6M6M. I want to build a full 6M6M curve.
My question is: How can I derive ...
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Charting software for SOFR future calendar spreads
trying to chart SOFR calendar spreads in TOS, but the wicks are way too long to be accurate. It's showing 50bps swings daily but that isn't right. Are there any alternatives?
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How is swap rate calculated for a vanilla swap when there is a lag between the trade date and the start date
Take a vanilla EURIBOR swap and suppose that the start date of the swap is equal to the trade date. To compute the swap rate, you say that the value of the swap at the trade date must be zero, which ...
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IRS with early termination provision
I have an IRS with an early termination clause (Bermuda style). Do I value it as always or does it have any impact on the value?
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Calculating value of vanilla swap after effective date
I'm trying to find the value of a fixed to float interest rate swap using Rateslib library but I'm running into a few issues.
I've followed the code exactly as the link here but now I'm trying to ...
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Macro Hedging Bond Index Total Returns with IRS to get Excess Return over Swaps
I have the historical total return and duration index data for a bond index, and I want to get the excess returns, over swaps.
I have access to historical swap rates from bloomberg.
How can I ...
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Carry Roll Calculation for Interest Rate Swaps in Nordea Note
In the Nordea note linked in few other posts related to carry roll calculation there is a calculation/example for the formulas provided.
https://corporate.nordea.com/api/research/attachment/2796
I'm ...
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Carry and Roll on Interest rate Swap [duplicate]
Only spot starting swaps have a known fixing, F(0,6m). There’s no carry in a
forward starting swap as there’s no certain payments (on the float leg).
This is claimed in an excellent research note by ...
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How does Bloomberg calculate reset rates for a fixed to floating swap?
I believe Bloomberg uses daily compounded sofr rates to calculate the reset rate for a cashflow period. My question is when I take the data from S490 curve - USD SOFR curve directly and linearly ...
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Rates Curve 'Realising' vs 'Rolling'
Just saw an exchange on X and would appreciate if anyone could try their hand at going into a bit more detail (and even maybe using an example) to breakdown the conceptual difference of rates curves '...
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Regression swap vs bond future
I have to perform a regression to get an hedge ratio. The dependent variable is the change on day of a swap fixed rate (f.i. 10y) and the independent variable is the change on day of a bond future ...
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Interest Rate Swap versus Cash Bond
From the point of view of a leveraged fund manager, what is the benefit of buying a bond when the same could be expressed through an OIS swap? Assuming, of course that the swap is not mispriced i.e. ...
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Interest Rate forward calculation [closed]
I have come across two formulas for the forward interest rate computation.These are given below.
1)((Df1/Df2)-1)/(T2-T1)
2) (R2T2-R1T1)/(T2-T1)
I do not understand when should i use which one of the ...
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Calculating Implied rates from OIS and Futures
I've been trying to figure out how to calculate the implied rate for interest rate decisions by central banks using OIS and came across an explanation that I can't quite wrap my head around:
Apart ...
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QuantLib swap Fair Rate not the same as the constructed curve nodes
I'm having trouble getting the same nodes when evaluating Fair Rates for a Mexican TIIE swap.
I think my problem is in the MXNOIS curve creation, but I'm not sure.
For evaluating, I am creating the ...
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Where can I find implied rates for central bank decisions?
Sometimes I'll see sources online say things like markets are pricing in a certain amount of bps rate cuts/hikes by the Fed or ECB (or some other central bank) for a certain monetary policy meeting ...
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When to use SOFR strip VS Eris interest rate swap, what is the difference?
I am a beginner in financial risk management. learning this as a hobby. Please guide me here.
Here we have 2 examples where one example uses ERIS swap futures and other uses SOFR strip to hedge.
What ...
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STIR Topic: How to calculate implied policy rate for next meetings using FRA
Here a question about market implied rate using FRA: In some countries, like Poland, Hungary, Czech and South Africa, you have only FRA to find the zero rate for maturity less than 1 year. Here a ...
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Approximate 5y swap rate move in 1 tick move in 5y treasury
If CT5s (the current on the run 5y treasury) goes from 99-20 to 99-21 - what will be the approx rate move in the 5y swap rate. Just trying to ascertain rule of thumbs for 5y, 10y and 30y.
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PCA and OLS regression to transform to interest rate risk? [duplicate]
I’ve been working on different interest rate risk transformation methods for swaps and was interested in implementing PCA & OLS regression. I’m looking to bucket my exposure in all tenors to ...
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QuantLib: Problem with IRS valuation
I would like to value an IRS. My first problem is with "RuntimeError: more than one instrument with pillar". Theres is clearly no overlapping instruments. I can't get the valuation of the ...
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QuantLib: IRS valuation
I tried to value a simple IRS in QuantLib and failed. I have few questions, which will probably help to resolve these issues. Would be super grateful for answers in these matters.
When I set up a ...
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Do RFR swaps fix in advance or arrears?
Consider the floating leg of a IRS on the RFR which is effective today at $t_1$ and has a payment at $t_1 + 3M$.
My question is, when the payment occurs at $t_1 + 3M$, is this the $3M$ forward rate ...
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Precisely how do you delta-hedge a spot-1Y SOFR IRS with SOFR futures?
I'm struggling to construct hedge ratios that delta-hedge a spot-1Y IRS.
Say I'm roughly in the middle of an IMM period, date = Oct 30th 2023 and I trade a 1k dv01 spot-1Y SOFR swap. I'll need some ...
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Two types of hedge : impacts on position carry
Think of an IG bond purchase, financed at 3M Euribor, in an inverted curve environment.
The yield on the bond, Y, is below the 3M Euribor, at purchase.
The investor is looking to lock in a spread over ...
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SOFR Futures and impact on short-end dollar swaps and front-end notes
Suppose there is an exogenous event that triggers SOFR futures to be repriced lower.
For simplicity, lets say the SOFR futures mostly impacted are whites/reds.
Since USD swaps are priced off of the ...
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Interest rate swaps - if i expect rates to be cut later than market expectations, what swap can I put on?
If I think market expectations are too dovish and I expect rates to stay high for longer i.e. rate cuts by X central bank to happen in September for example (as opposed to whats priced in, e.g. May), ...
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Who exercises the termination in an early termination clause on a swap
If we have a 30y swap with 5y early termination breaks exercisable by either party, at each termination period, who would exercise the early termination/choose to break the swap? Is there an optimal ...
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Convexity adjustment future/fra in practice
The topic of Future/FRA adjustment has already been addressed on a theoretical point view, roughly we need a rate model to calculate the covariance between the money market account of the discount ...
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