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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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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Optimize interest rate swap calculations in Monte Carlo Simulation
I’m running a simulation in which I want to calculate the NPV of 100 swaps over 1000 (or even much more) different interest rate curves.
It looks like Quantlib is not really fast in performing these ...
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carry and roll of an asset swap [closed]
I came across many interesting questions regarding carry and roll of swaps, bond futures and bonds. Now I found that link about the carry / roll of an asset swap. Reading that article two questions ...
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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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Why is carry divided by DV01 to scale it?
If I understand correctly, 6M carry in a fixed-floating interest rate swap should be the difference between the fixed and floating leg.
When I read this on Page 2:
https://corporate.nordea.com/api/...
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Curve Trades - Forward Swap vs Swap(Payer and Receiver)
let's say I want to do a steepening trade. What would be the difference between
entering a swap starting in 5 years and lasting for 5 years (5y5y)
entering a payer swap with a tenor of 10 years and ...
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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 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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Stub rate and first fixing in IRS
I have 2 questions that probably are related.
Suppose there is an IRS that pays a 2% fixed rate every 6 months and receives the Libor 3 months (but paid every 6 months).
The swap starts today (March ...
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ATM interest rate swap dv01 vs off-market swap dv01
How significant is impact on dv01 of an at-the-money swap if rates move significantly?
For example: lets say a 5Y USD at the money swap has 4.6 duration. now, if the rate curve move by 150-200bps, ...
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Approximate dollar MTM of interest rate swaps
I'm definitely a fixed income tourist but I'm wondering if there's an easy way to back of the envelope approximate dollar PnL of an interest rate swap
For example, if I enter a $1m fixed 5y USD swap ...
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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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Returns of an interest rate swap
I would like to calculate returns for a plain-vanilla (fixed-for-floating) interest rate swap. Consider, that I am long in USD 5-year swap rate, i.e. I'm holding a receiver swap for 5-year swap rate ...
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OIS Fixed Rate - how to calculate on trade booking?
I am trying to understand how the Fix rate on a OIS trade is calculated at trade initiation. I understand this process for a Fixed V LIBOR trade non collateralized ( discount and projection curve are ...
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Repricing SOFR Quotes and Non-Zero NPV
I generated/calibrated a SOFR Curve using Quantlib Python and would like to know why when repricing the swaps have non-zero NPVs. Appreciate any assistance. Thank you.
Parameters
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How to get forward rate fixing when valuating a swap
Suppose I want to value a (fwd) starting swap, that means I would like to calculate the fixed rate $S_{\alpha, \beta}(t)$. Note, I'm using Brigo's Notation here. We know that the discounted payoff of ...
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Term SOFR rate formula
The following website gives the specifications of the CME Term SOFR reference rates: CME Term SOFR.
Point 1 in the link above specifies that the tenors that are currently supported are 1m, 3m, 6m, and ...
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What is the Performance Total Return Swap (TRS)? How about Performance Fixed TRS and Performance Float TRS?
I just know these products recently: Performance Total Return Swap (TRS), Performance Fixed TRS and Performance Float TRS.
But cannot find a detailed explanation of the product, all I can find is an ...
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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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Bloomberg SWPM: Day count to calculate discount factor for US0003M
I'm trying to replicate price I get for CCIRS in SWPM. This is USD3m float vs RUB 1Y. Second leg doesn't matter for my question.
Suppose today is 7th of Jan 2019, deal date. Settlement will happen on ...
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Interest Rate Options - OTC vs Exchange, vol difference
I understand that Exchange Traded Interest Options (USD Libor 3m or Euribor 3m) trade with a lower volatility than the respective Cap or Floor for an equivalent structure.
Can anyone give any colour ...
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How do you identify nondeliverable swap
what is unique about NDS transactions, how can I identify them using certain parameters or attributes specific to NDS?
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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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Market convention for building the front-end of the SOFR discounting curve
In SOFR Discount Curve Construction in Nov 2021, @dm63 does an excellent job describing the way to build the SOFR discount curve. A few questions:
What is the market convention for building the ...
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USD swaps trading post LIBOR: the current state of the world (January 2022)
The USD interest rate swaps market has been transitioning from LIBOR to SOFR for some time. In the "old days" when swaps reset against LIBOR underlyings, there were a few "market ...
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VaR on Interest Rate Swaps
I am a newbie and was after a simple explanation on how VaR is calculated for a portfolio of IRS's.
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Use QuantLib Python to calculate Swap DV01
I would want to use QuantLib Python to calculate DV01 of an interest rate swap.
Initially I was thinking of calculating the fixed leg DV01 and floating leg DV01 separately, then add both legs DV01 ...
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Market Convention to Price Interest Rate Swaps (post LIBOR transition)
Prior to the onset of the Global Financial Crisis in 2008, interest rate swaps were priced using a so-called "single curve framework". Under this framework, the LIBOR curve was used to ...
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Floating swap payoff with rate determined on current instead of previous date
I am attempting to determine the payoffs a modified swap, in which the floating payments at a time $T_k$ are made on the current date (i.e. $L(T_k,T_{k+1})\equiv L_{k+1}(T_k)$) rather than at the ...
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SOFR Transition
I have few doubts regarding transition from IBOR to SOFR rates.
How will the method of calculating/estimating curve rates change after changing to SOFR?
Will there be any change in valuation ...
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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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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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end-of-month or not for plain vanilla interest rate swap
Quick and hopefully simple question about a standard swap schedule. Let's say we have a plain vanilla 3y fix-flt interest rate swap with cpn-freq = 1, no stubs, in for example EUR.
Start date: 2021-11-...
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Annualizing the pay frequency of underlying swaps when bootstrapping the zero curve?
Say I'm looking to bootstrap two zero curves based on two swap curves with different underlying currencies and, consequently, two different pay structures in the swap contracts. For example, say I ...
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