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.
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Pillar Date of Overnight Interest Swap Helper
I am not being able to set the pillar date of an overnight interest swap helper to its maturity date.
I have the following code:
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Discounting the cashflows in IRS by risk free rate
Let say I have a IRS contract where float rate is determined by some LIBOR variant.
Almost all textbooks I had considered, tell ...
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interest rate swap: PV01 vs DV01
Bloomberg defines PV01 as PV of adding 1 bps on a fixed coupon , while 'DV01' as (down - up principal) / 2 * bps shift. The ...
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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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Can PCA be used to transform a ladder of interest rate risk?
The context
For traders/market makers on interest rate swaps desks, it is essential to have a model that transforms risk from its most complex representation (i.e. a ladder of every tenor) into a less ...
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BLOOMBERG Strike vs Straddle Volatility
In Bloomberg's VCUB, what is the difference between the "strike" volatility and changing this option to "straddle"? It seems like the "straddle" vol should be the same as ...
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swap carry/rolldown mid-period
Pretty much all discussions and examples I have seen discussing carry and roll down for fix-flt interest rate swaps are ones where the forward date coincides with the coupon dates on both legs.
It ...
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Replicating QuantLib plain vanilla Interest Rate Swap valuation
I'm learning QuantLib-Python and trying to replicate an Interest Rate Swap valuation on a custom curve constructed by passing lists of dates and discounting factors. Please see my code below
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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}, ~...
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Carry for an Interest Rate Swap
I don't get why for calculating the carry of a spot starting swap I need to adjust the difference between the fixed rate and fixing by the Dv01?
For example if I receive in a 5y swap and want to ...
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Should I use the yield curve or swap curve to find the value of my swap? [closed]
The PiVe Capital Swap Spread Trades' case study (in Fixed Income Securities from Pietro Veronesi) suggested that in pricing a swap, using a swap curve appears to be the most reasonable methodology.
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Relation (approximate??) between Swap rate and Cap strike
I just have come across some relation between Interest rate swap and strike of Cap as below
$K_{Cap Strike} = \frac{1}{1 + r \...
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Fixed vs float swap interest rate risk
I have some technical questions about what are the best settings in Bloomberg to calculate the interest rate risk of a swap.
When Bloomberg calculates the DV01, it simply bumps the par swap curve by +/...
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Duration of interest rate swap - seek explanation from a previous post
I have come across a Q&A about the calculation of the duration of an interest rate swap on this site.
In the Q&A, the derivative is calculated as:
$\frac{\partial PV}{\partial r}=t_nD(t_n)+q\...
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OIS example in Hull's book
In Hull's book (9th edition), on pages 202-203, there is an example for computing the payoff of an OIS that I am confused about. It says suppose in a US 3-month OIS the notional principal is \$100 ...
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How to compute for basis adjusted forward rate?
To give you a brief background, I'm valuing a fixed-for-float Interest Rate Swap (IRS) using Bloomberg. I put in a notional amount in (USD) and a assigned 6MO USD LIBOR as the reference index for the ...
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Par par asset swap counterparties in practice
In practice is it possible to enter into a par par asset swap where the bond is purchased from counterparty A and the swap element is conducted with counterparty B?
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Higher coupon on interest rate swap has higher DV01
Why the higher the fixed rate of a swap is, the higher the DV01 will be?
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Different types of swaps and generalized pricing structure - correlation swap, variance swap, volatility swap, gamma swap, etc
I am very new to derivatives pricing, and I am currently trying to learn these on my own.
As far as I can tell, most of the derivatives that are simple (in the sense of having a constant strike that ...
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Quantlib: Problem with discount curve with different settlement days than the swap curve
When pricing a interest rate swap, I use the swap curve to price the instrument and the corresponding OIS curve to discount it. However, for some countries (eg Canada), the IRS curve settles on the ...
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What is the scope of spot lags and spot dates?
In the context of interest rate derivatives, we often speak of the spot date. But of course, there is not a "the" spot date, because there are multiple spot dates, for example for different ...
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Calculating the volatility of an interest rate swap
At its most basic the volatility of an instrument is the standard deviation of its return series over time calculated as percentage change of the price series.
How would this work for interest rate ...
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MtM of interest rate swap if forward rates are realised
It might be a very simple question but for some reason I’m a bit confused.
Let’s say we enter a long SOFR vs fix interest swap at par. Say 5 year swap with annual coupons (the rfr is daily compounded ...
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How to read the notation used for the swap rates in the form 4.412/452 for the 1 year swap rate?
How to read the notation used for the swap rates in Table 20.6 below?
What does 2.412/452 means?
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Quantlib Slow valuation of ois_swap on multiple eval days
I have bootstrapped a curve using several depo and swap rates and am trying to use that curve to get the NPV of a swap over a period of time. The generation of prices iteratively through time is ...
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PTP 10% Withholding [closed]
Apparently there's a new IRS rule that can be summarized as "starting January 1st, 2023, investors who are not U.S. taxpayers must withhold 10% of proceeds from the sale of PTPs (Publicly Traded ...
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Cash flow mapping on multi curve framework
I am trying to map cash flows according to FRTB pillar dates, on an Interest Rate Swap fixed Vs Euribor 6 months. Using the sensitivity preserving approach, under the OIS framework, this has to be ...
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IRS Payer/Receiver swap dv01
I was just wondering whether it was possible for long payer swaps to have a negative dv01 and vice versa for a short payer to have a positive dv01? Intuitively by definition of payers and receivers I ...
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Total Return Swap (TRS) on Convertible Bond
Is there any relevant paper/source I can look at for pricing TRS on convertible bond? Specially, how should I evaluate the asset return leg? Let's say I already have an convertible bond pricer that ...
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how is accrual calculated on the floating leg of a OIS swap
for Libor swaps, the accrual for the floating leg is easy as the cashflow is known already at accrual start day. The calculation would be similar to how the accrual of a bond is calculated.
How about ...
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Most relevant papers on IR / discount rate(s) modelling in the last 5 years
As the question states, what are some relevant recent papers I, as a non-expert, should read on IR modelling, products, and mechanics (that do not involve AI/ML)?
I think my knowledge on this topic ...
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Improving Fixed-Fixed Cross-Currency Swap Pricing in Python with Limited Data and Quantlib
I am working on creating a fixed-fixed cross-currency swap pricer in Python for EUR-USD and GBP-USD pairs. Here's my current approach:
Bootstrap a GBP SONIA curve.
Bootstrap a SOFR curve.
Obtain the ...
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what is the problem of using asset swap spread to compare bonds
people use asset swap spread to compare bond relative values (rich/cheap).
is there a known issues or anything that needs to be aware of when using swap spread to compare relative value of bonds?
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Find the spread of an Asset Swap Spread
An Asset Swap Spread contract exchanges the annual defaultable coupons computed on the defaultable term structure $SPS^1$:
$$
SPS^1 = {i^1(0,1) = 0.025; i^1(0,2) = 0.03; i^1(0,3)=0.018}
$$
versus s ...
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Understanding how markets predict BoC's policy interest rate decisions
I read in the newspaper things like,
Interest rate swaps, which are based on market expectations about future rate decisions, are pricing in at least one Bank of Canada rate cut later this year, and ...
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How to compute forward swap rates?
I am trying to compute shocks on the forward swap rates based on shocks to the swap rate curve (aiming at repricing consistently a set of swaps and swaptions based on a shock to the swap curve):
It ...
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NPV calculation of past flows [closed]
I have a theoretical question concerning NPV calculation of financial products.
I know how to calculate it when future flows have to be estimated, but I am wondering how to calculate past flows. In ...
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EPE for interest rate swap
Hey how to calculate Expected positive exposure in the case of interest rate swap? Assume that I simulate $M$ interest rate paths for time grid $0=t_0\le t_1 \le ... \le t_N = T.$ What is the ...
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P&L explain for swap?
I try to make a P&L explanation of a swap from the delta, gamma, to the N instruments of the rate curve (money market, futures and swap).
I use a perturbative shock of 1bp for each instrument of ...
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forward starting interest rate swap trade settlement date
Say today is 13rd Dec 2022,
For a spot staring swap, its settlement date would be 15th Dec 2022 assuming the settlment offset is 2 days.
What is the settlement date for a one year forward starting ...
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Difference between OIS Rate and Fed Funds Rate
I understand Fed Funds Rate is the rate at which banks lend/borrow to/from each other to maintain their daily reserve requirements at the Central Bank; also it is unsecured-meaning no collateral.
Is ...
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Simplified formula for duration of interest rate swap
Lets consider the simple interest rate swap instrument as 5-year maturity interest rate swap. I found an interesting simplification to calculate the duration of such swap as,
$\frac{\left(1 - e^{-r_t *...
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What is Dual Curve Bootstrapping? And how to do it, with an example?
I am starting to explore this area. My ultimate aim is to build a 3 month LIBOR forward curve.
I wish to know what exactly 'Dual Curve Bootstrapping' is (If someone could explain it in clear words).
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How to quickly calculate PV01? Or quickly calculate notional back given PV01 and duration?
is there a way to quickly calculate the PV01 of for example for a swap EUR fix floating 10 years?
And is it possible to calculate the Notional, with a given PV01 and the years of the trades or ...
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How OIS swap rates behave when we receive or pay OIS swap rates?
I am reading a news article regarding how OIS swap rates behave when we receive or pay OIS swap rates.
The article states that when we receive OIS swap rates it makes swap rates fall. When we pay swap ...
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Confusion about Initial Pricing IRS with Dual Curves
This is my first time delving into dual curves, or multiple yield curves. A question struck me about using OIS discounting when choosing the swap rate of a new IRS.
Without multiple yield curves I ...
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Par rate of Interest Rate Swap
I'm interested in deriving the par rate of an interest rate swap priced under the single curve framework. Let's follow the corresponding Wikipedia article for the sake of notation simplicity.
The ...
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Use of interest rate swaps in liability-driven investing
You probably have home across recent events in the UK bond markets. The Financial Times article "The reason the BoE is buying long gilts: an LDI blow-up" from Sep. 28, 2022 goes through why ...
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Bermudan Swaptions [closed]
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 ...
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