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 ...
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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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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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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 ...
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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.
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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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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 ...
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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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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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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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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 ...
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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. ...
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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
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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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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 ...
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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 "...
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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 ...
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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 ...
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QuantLib: Latin American FixedFloat Swap pricing with multiple payment frequency specification
With reference to the post of latin american swap, I am valuing the FixedFloat CLP swap.The specifications of this swaps has payment frequency upto 18 months as Zero coupon(1T) and after that ...
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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 ...
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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 ...
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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
$$Floating~Leg = \sum\limits_{i=1}^N P(T_i)\cdot\frac{\sum_{k=1}^m F(t_k, t_k+\delta)}{m}, ~...
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Duration of interest rate swap - seek explanation from a previous post
I have come across a Q&A about the calculation of the duration of an interest rate swap on this site.
In the Q&A, the derivative is calculated as:
$\frac{\partial PV}{\partial r}=t_nD(t_n)+q\...
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Par par asset swap counterparties in practice
In practice is it possible to enter into a par par asset swap where the bond is purchased from counterparty A and the swap element is conducted with counterparty B?
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Total Return Swap (TRS) on Convertible Bond
Is there any relevant paper/source I can look at for pricing TRS on convertible bond? Specially, how should I evaluate the asset return leg? Let's say I already have an convertible bond pricer that ...
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Improving Fixed-Fixed Cross-Currency Swap Pricing in Python with Limited Data and Quantlib
I am working on creating a fixed-fixed cross-currency swap pricer in Python for EUR-USD and GBP-USD pairs. Here's my current approach:
Bootstrap a GBP SONIA curve.
Bootstrap a SOFR curve.
Obtain the ...
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forward starting interest rate swap trade settlement date
Say today is 13rd Dec 2022,
For a spot staring swap, its settlement date would be 15th Dec 2022 assuming the settlment offset is 2 days.
What is the settlement date for a one year forward starting ...
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Swaps: Why is this approximation of carry valid?
I decided to split the first part of my original question into this separate one as they are somewhat unrelated.
The definition of carry of a (spot) starting swap I know is $$\frac{S(0, T) - F(0,\tau)}...
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Interest rate swap Profit and loss attribution
I am wondering how the IRS daily PnL will normally be attributed from trader's/market risk perspective.
Will it be broken down into three parts daily carry (Daily interest accrual), daily roll-down (...
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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
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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 ...
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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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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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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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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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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, ...
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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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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 (...
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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 ...
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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 ...
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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 ...
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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 ...
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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.
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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 ...
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Quantitative impact of Dodd-Frank Act on risk management
The US Dodd-Frank Act (DFA) introduced mandatory central clearing of standard (e.g. plain vanilla) swaps for big financial institutions in the US in 2013.
It might be a broad question but: what have ...
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Why is the annuity factor proportional to the CV01?
For an asset with par amount of one unit (with a semiannual payment regime) we have
$$\frac{C(T)}{2}\sum_{t=1}^{2T}d\Big(\frac{t}{2}\Big) + d(T) = 1$$ $$\implies\frac{C(T)}{2}A(T) + d(T) = 1,$$
...
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Adjoint Algorithmic Differentiation: swap pricing
I have tried to implement an AAD routine to price call options using the Black-Scholes formula, but my greeks are not quite agreeing with the expected ones, so I have decided to start with something a ...
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Valuing cleared cancellable swap
I have a cancellable swap to value, with the float leg payer being a clearing house.
The cancellable term sheet states the interest rate swap has a Bermudan style optionality for early termination ...
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US Treasury interest rate swaps
I know that Bloomberg will give me the swap rates for Treasury 30's-5's, but I don't have a Bloomberg. Can anyone direct me to a source?
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Interest Rate Swap curve: CMS vs. OIS?
I'm working on a project where we're trying to create a database model where we can (daily) update collected data in order to make RPA predictions.
We received data from Interest Rate Curves called ...
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