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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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Swaptions on SONIA/SOFR/ESTR

Given that LIBOR is being decommissioned and we must start building liquidity in swaptions on the OIS swaps, how do we price them? i.e. If I have a swaption on SONIA/SOFR/ESTR etc how does the pricing ...
BrownianBread's user avatar
5 votes
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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 ...
Frido's user avatar
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3 votes
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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,...
User27's user avatar
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3 votes
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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. ...
equanimity's user avatar
3 votes
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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 ...
Kermittfrog's user avatar
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3 votes
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Libor transition to SOFR - swaps after 2021

Assuming that Libor will fully transition to SOFR by the end of 2021. How are swap rates after 2021 currently priced to reflect this? For example, if I am looking at 5 year US swap rate, doesn't this ...
decaybeta's user avatar
  • 101
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411 views

Reset Date standard for ICP (Indice Camara Promedio) trade

What is the Reset Date standard for ICP (Indice Camara Promedio) trade? Trade Currencies are USD v/s CLP. Please provide the ISDA link if there are any amendments to ISDA standards.
Pankaj Thapa's user avatar
3 votes
1 answer
5k views

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 ...
Carlos F.'s user avatar
3 votes
1 answer
261 views

What is mathematically rigorous way to estimate floating swap cash flow in the future?

In vanilla swap, the FL payments is fixed on one date and paid on the next reset date. So the next payment is known. However, the payment after that is not known. What would be the best estimate of ...
user12348's user avatar
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2 votes
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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 ...
rubiks99's user avatar
2 votes
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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 '...
barnslinger's user avatar
2 votes
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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 ...
A.S.'s user avatar
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2 votes
1 answer
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Brazil IR swaps and help with new holiday

Brazil has a pending new holiday that is expected to be official in the next month, for date Nov 20. Existing BRL interest rate swaps contracts have a clause that fixed accruals are not impacted by ...
BigWR's user avatar
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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 \...
Brian Smith's user avatar
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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 ...
Tom Anderson's user avatar
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135 views

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 ...
henriqueab's user avatar
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How Bloomberg calculates discount rates for zero rate curves?

I would like to ask about discount rates calculation algorithm by Bloomberg terminal. In the image above is possible to notice the discount rate for each term. The short end, instruments from 1 DY up ...
Sávio Brilhante's user avatar
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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
stackoverflower's user avatar
2 votes
0 answers
254 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 ...
Fail Analysis's user avatar
2 votes
0 answers
1k views

How to find the risk-free rate and dividend rate for S&P 500 index options?

I'm currently working on a project using S&P 500 index options(European) data. I haven't done any empirical experiments before, so I'm confused how to find the corresponding risk-free rate and the ...
Lefair's user avatar
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How to calculate Interest Rate Swap returns

Could someone help me please? I have calculated the Carry + Roll Down of holding IRS of several countries. My Carry and Roll Down is about 5y IRS, holding it for 3 months: 5y3M. So, I have the "...
Gustavo Escudeiro's user avatar
2 votes
0 answers
242 views

Basic question on Plain Vanilla Interest Rate Swap pricing

I'm new to quant and would like to understand on pricing AUD Plain Vanilla Interest Rate Swap. In post/article/book often explain for long end, we use SWAP RATE that are observed in market. But I'm ...
Lorienzo's user avatar
2 votes
0 answers
207 views

Discount rate in IRS valuation

This might be a very basic question but I didn't find the answer in the materials I saw on Google. What is the interest rate used to compute the discounted cash flows for both the fixed and variable ...
AlexM's user avatar
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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 ...
EricFlorentNoube's user avatar
1 vote
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86 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 ...
User27's user avatar
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1 vote
2 answers
343 views

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), ...
user131113's user avatar
1 vote
1 answer
236 views

Find the right module for CDI DI BRL swaps valuation Quantlib

I'm trying to find a way to price BRL CDI Swaps with Quantlib but I can't find any solutions so far - so I was wondering if anyone encountered this issue: I don't see any solution on Quantlib. I ...
Gloomy's user avatar
  • 21
1 vote
0 answers
213 views

Determining the floating rate for an interest rate swap

I'm trying to price an Euribor 6M Swap and comparing this to Bloomberg's swap manager. However, I'm having some doubts on my implementation of getting the reset rate for the floating leg. In Bloomberg ...
aghilario's user avatar
1 vote
0 answers
133 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}, ~...
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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\...
augustine's user avatar
1 vote
0 answers
96 views

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?
Workinghardtohardlywork's user avatar
1 vote
0 answers
335 views

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 ...
Fail Analysis's user avatar
1 vote
0 answers
343 views

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 ...
AB123's user avatar
  • 51
1 vote
0 answers
107 views

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 ...
Peaceful's user avatar
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1 vote
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Swaps: Why is this approximation of carry valid?

I decided to split the first part of my original question into this separate one as they are somewhat unrelated. The definition of carry of a (spot) starting swap I know is $$\frac{S(0, T) - F(0,\tau)}...
swissy's user avatar
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1 vote
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How to calculate the gaussian VaR for a portfolio with 3 corporate bonds and 1 IRS payer?

As data I have the daily change of zero coupon spot rates for some vertex (0.25, 0.5, 1, 2..) and the daily change of z-spread for corporate bonds, also by vertex
Alessandro Campagna's user avatar
1 vote
0 answers
171 views

Why LIBOR discount and continuous compounding discount are different?

The reference is Fixed Income Securities by Pietro Veronesi. As you can see, In Table 20.5 when the maturity is 1.25, the LIBOR Discount is 96.7402 However In Table 20.3 with same maturity, the ...
user13232877's user avatar
1 vote
0 answers
111 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 ...
ExcelRates's user avatar
1 vote
0 answers
929 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 ...
swissy's user avatar
  • 157
1 vote
0 answers
697 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 ...
AB123's user avatar
  • 51
1 vote
0 answers
202 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 ...
bsundr's user avatar
  • 11
1 vote
0 answers
593 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 ...
AB100's user avatar
  • 11
1 vote
0 answers
318 views

DV01 on IRS giving error in Quantlib for ZAR curve "1st iteration: failed at 14th alive instrument"

I am at my wits end to calcualte the DV01 of a swap but keep getting the error "RuntimeError: 1st iteration: failed at 14th alive instrument, pillar May 28th, 2024, maturity May 28th, 2024, ...
Pratikgcet's user avatar
1 vote
0 answers
122 views

Swap curve is unsmooth at front end with naive interpolation

I am looking at swap curve building at front end and find it difficult to get a smooth forward curve with a fast generic algorithm. For example, EUR 6m curve has 6m deposit, and then a series of FRAs (...
vicpmath's user avatar
1 vote
0 answers
43 views

Interest Rate Swap Question

I am new to IRS. Pay 2Y HKD-USD IRS spread. It is a trade idea recommendation. Can someone explain what this trade entails? Does it mean paying fixed and receiving 3m USD LIBOR over 2 years? Please ...
Zacharyk's user avatar
1 vote
0 answers
120 views

Different FEDFUND INDEX use for Basis swap with LIBOR and SOFR

I am trying to understand the compounding in Basis Swap. I had 2 type of basis swap trade as below USD SOFR FF BASIS LCH – compounded FF (USD-Federal Funds-H.15-OIS-COMPOUND) USD LIBOR 3M FF 3M BASIS ...
Rachel's user avatar
  • 111
1 vote
0 answers
127 views

Uncollateralized cross currency swap valuation

I want to value an uncollateralized cross-currency swap to exchange EURIBOR 6M for JIBAR 3M (Johannesburg Interbank Average Rate). I have a few questions: What discount curves should I use? From ...
SN76's user avatar
  • 21
1 vote
0 answers
150 views

How determine swap rate with binomial tree

The risk free rate is $0,01$ while the risky rate follows a $2$ period binomial model and the risky rate at time $t=0$ is $1$, where $u= 1.5$ and $d=0.6$. How can I determine a swap rate of IRS with ...
David's user avatar
  • 11
1 vote
0 answers
145 views

Day-count conventions for the floating leg of an asset swap

Which is the day-count convention in order to compute the floating leg of an asset swap? I don't know if it is: Act/360, Act/365, 30/360 or 30/365.
Fabio's user avatar
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1 vote
0 answers
1k 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 ...
farmer's user avatar
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