All Questions
Tagged with interest-rate-swap convexity
11 questions
7
votes
1
answer
182
views
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 ...
- 71
2
votes
0
answers
142
views
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 ...
- 51
0
votes
0
answers
281
views
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 ...
- 553
3
votes
0
answers
298
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How do I calculate implied convexity from futures vs swaps?
From STIR Futures - Trading Euribor and Eurodollar futures
by Stephen Aikin, convexity is determined by comparing the zero rate on a swap with an equivalent set of futures. For example, using futures,...
- 51
1
vote
0
answers
164
views
Convexity Adjustment for Average Rate IRS
Suppose that one want to price an Interest Rate Swap with daily averaging, i.e. the floating leg looks like
$$Floating~Leg = \sum\limits_{i=1}^N P(T_i)\cdot\frac{\sum_{k=1}^m F(t_k, t_k+\delta)}{m}, ~...
- 853
3
votes
3
answers
1k
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} (...
0
votes
1
answer
2k
views
Gamma/Convexity of a Swap vs a similar bond
As a rule of thumb, how would the duration and convexity of a 30y UST bond paying X% compare to the duration and convexity of a matched maturity vanilla interest rate swap, with a similar fixed rate.
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2
votes
1
answer
2k
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Price Alignment Interest(PAI) Convexity Effect
I've been looking at convexity adjustments in ED's for several years(more opportunities a few years ago then currently) and was wondering if my thinking on PAI impact on swaps convexity is correct.
...
0
votes
1
answer
634
views
Basis swap spread pricing and bootstrapping
Here is the expression of a basis floating versus floating swap where the first term is a forward CMS Swap leg and the second one is a forward BOR leg where X is the margin that would make equal both ...
- 83
14
votes
4
answers
8k
views
What is the correct convexity adjustment for an Interest Rate Swap with unnatural reset lag?
I am looking at the valuation of an Interest Rate Swap (IRS thereafter) which is pretty much vanilla with one small tweak. Floating leg pays 3 months LIBOR in monthly intervals. To be precise: ...
- 331
6
votes
3
answers
3k
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Interest Rate Convexity - Fundamental Question
I have a very basic question around convexity adjustments in swap valuations. I am comfortable with the mathematical derivation of the convexity adjustment.
My question relates to when and why a ...
- 103