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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Derivation of Swap rate formula
Assuming usual notation, I derive the floating rate and fixed rate payoffs and set them equal. The par swap rate I get thus is:
$$S_{mn}\mid_{t=0} = {\sum_{i=m}^{N-1} \tau_i L(0, T_{i-1}, T_i)Z_{0i} \...
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Duration of forward starting swap
For a spot starting interest rate swap, the duration is calculated as the duration of the fixed rate leg less the duration of the floating leg. Each of these calculations is akin to calculating the ...
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Why are Interest Rate Swaps not valued using Monte Carlo Simulations?
the current valuation methods seem to rely on treating the floating payment as deterministic based on the current yield curve and derived forward rates. But wouldnt it make more sense to use monte ...
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Tenor bucketing for swap interest rates?
in the place I work I've noticed that for asset class Interest Rate Swaps, tenor bucketing takes place. Example as follow:
IRS with maturity 2 month being bucketed into a "3 month tenor bucket"
Page ...
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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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In Arrears Swap - what accrual period applies?
In Arrears Swap, the floating rate is reset and paid on the same date.
What accrual period is applied to compute the payment -
If the dates are t1, t2, t3 ...tn.
(assume overlapping date schedules ...
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Eonia swap calculation of floating rate
I'm new to swaps, I've a question about how to calculate the floating rate of an EONIA Swap from market quotation, so that we can keep an eye on the evaluation of our contract Market Value, DV01, etc.....
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Calculate tenor wise DV01 of a Swap in Quantlib Python, i.e. Key-rate Duration
Is there a way I can get DV01 breakup of a Swap across different tenors of the deal in Quantlib-Python. The question asked here, follows the basic method of re-valuing the swap by shifting the curve ...
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Bootstrapping spot rates based on swap rates using QuantLib
I am bootstrapping the shibor curve and fr007 curve using swap rates in China. I created my own index like following:
...
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Arbitrage on Libor and swap market
I must be wrong here, but still want to know where I am wrong. I found the data of Libor rate and swap rate from this link: http://www.interestrateswapstoday.com/libor-rates.html
At the time, I read
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LIBOR Curve bootstrapping and compounding
I am currently reading about swap pricing based on using the LIBOR curve to calculate spot rates, forward rates, and discount rates. From what I understand LIBOR is quoted as a simple interest rate ...
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Basis Swap Dual Curve Calibration
The long end of the Libor swap curve needs to be constructed from Basis Swaps because there are no other instruments traded. Can please someone explain the concept of Dual Curve Calibration?
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Why is it desirable to receive fixed on a zero coupon swap, and undesirable to pay fixed on a zero coupon swap?
In most established rates markets, swaps are discounted using risk-free reference rates, such as Sonia in the GBP market and Eonia in the EUR market, as opposed to Libor.
Because of the way zero-...
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Curve building for a swap
I'm a student learning how to build a swap curve, I've deposit 6m rate = 5%, fra 6-12m rate = 5.8% and 12m-18m rate= 6% and swap 2y =7% and 3y swap rate = 7.5%.
I get the correct discount factors for ...
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Pricing of compounded swaps
As far as I understand, a compounded swap rolls up individual payments into one final payment which becomes:
$$
V(t_n) = N \prod_{i = 0}^{n-1}(1 + d_i L_i)-N
$$
where $d_i$ is the day fraction for ...
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Find Interest Rate Swap BUMPs from Bloomberg in Excel
I have a bunch of plain vanilla interest rate swap contracts with all the relevant details regarding payment structure such as notional, fixed rate, index, payment frequency, reset convention, etc.. ...
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Is EONIA swap rate really credit risk free?
I have a question linked to the EURIBOR – EONIA spread (or OIS LIBOR spread).
I understand that the EURIBOR - EONIA spread is a credit risk indicator of the interbank market.
There is something I ...
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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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Two questions on Interest-Rate Basis Swap compounding
I have 2 questions on Basis Swap compounding and market conventions. These obviously apply where the reset period is shorter than the payment period
Where both fixings have shorter reset period than ...
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Carry vs Roll-Down on a zero-coupon IRS
I am trying to understand the differences between carry vs roll-down on a zero-coupon interest rate swap.
Lets say we have a 10 day ZC IRS, meaning we will only swap once on maturity. We are a payer ...
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how to derive yield curve from interest rate swap?
According to some textbooks, to derive the yield curve, quote
overnight to 1 week: rates from interbank money market deposit,
1 month to 1 year: LIBOR;
1 year to 7 years: Interest Rate Swap;
7 ...
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In a cleared inflation swap agreement, what determines how much "collateral" a party needs to deposit into the third party escrow account?
Does realized inflation or expected future inflation determine how much money needs to be placed into the escrow account each day?
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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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What is the difference between a cleared interest rate swap and a OTC interest rate swap with collateral in theory
I understand the aspect that central clearing reduced counterparty risks. From the valuation side, am I right that cash flows for both trades will be discounted at the OIS rate?
The party that holds ...
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ISDA SIMM swap sensitivities
Most of the commercial SIMM models require sensitivities to be passed in in CRIF format. The documentation mentions that "par sensitivities" need to be used. What exactly is a par sensitivity? When we ...
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Pricing interest rate swap in Ho Lee model
In Ho Lee model, assuming risk neutral probability is not exactly 0.5, would a change in the volatility of short-term rate affect the price of an interest rate swap?
My intuition tells me no as ...
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Interest rate swap valuation date convention
When we value interest rate derivatives on any date $t$, we can estimate our future payments using some calibrated forward curve $f_s$, where $s$ is the spot date, and discount these back to $t$ using ...
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Hedging amortising interest rate swap with vanilla swaps
Is it possible to hedge an amortising interest rate swap (linearly decreasing notional) with a series of vanilla interest rate swaps? With the amortising swap originated today at par rate and 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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Difference between FRA and a zero coupon swap
Wanted to know the difference between an FRA and zero coupon swap with both legs having payment at maturity. If the zero coupon swap is forward starting, will it be equivalent to an FRA?
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Why are multiple custom curves (swap) built for one desk?
Currently in a journey of learning and getting my hands a bit dirty with Interest Rate Swaps.
Why there are multiple customized curves built by many even within one desk? For e.g. Short Rates desk ...
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Bootstrapping zero coupon rates
How do we obtain discount rates to obtain zero coupon rates given only swap rates? what is the procedure? Also what exactly is curve calibration?
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Interpolating the swap curve
Does anyone know how I can calculate the swap rate in between main tenors for specific dates? For example: what is the implied swap rate in 1 year, 60 days time.
Is there an easy way to do this in ...
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Why using the swap curve as riskfree rate and no longer gov bonds?
I recently had an interview where I was asked what to use as risk-free rate. In all my textbooks it was always the US treasury yield curve.
But they said no its now the "swap curve".
Why is the swap ...
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Why does the ultra long-end of a yield curve invert?
The shape of the yield curve (at least in the GBP Rates market) is upward sloping from the front end up to the long end (i.e. 30y), but then begins to become downward sloping as we go beyond 30y and ...
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Cross Currency swap - Bond Yields arbitrage
Could somebody explain me step-by-step how can I compute the cross-currency yield of a bond bought by a foreign investor and x-ccy swapped back into his domestic currency? I basically would like to ...
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IRS Valuation to calculate the expected exposure [closed]
I have several levels of fixed rate swap vs. Euribor 6 months from 2007 up to now. I would like to know how to calculate with these data the fixed and floating leg of the swaps.
This is a part of the ...
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Calculate forward discount factors and forward reference rate when discount factors are known
I am trying to learn how to value interest rate swap through portfolio of FRA's(forward rate agreement).But I have got stuck in calculation of floating leg.
Here is the scenario as given below for ...
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Black and Normal Model for Caplet using Python
I am able to Price Caplet using Black 76 model in Python. However, I am unable to price the same with Normal Model. Can anyone suggest what is missing ?
I am valuing caplet that caps interest rate on ...
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Swap Pricing - Using forward rates vs using par bond after first floating payment
There seems to be two different methods I have come across for valuing a Interest Rate Swap - specifically the floating leg.
One method described by Hull: incorporates the cashflow from the first ...
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Calculate OIS rate 3 months, 1 year
I don't know if there are any similar posts in this forum but I’m trying to describe below all things that I understand about OIS rates and Libor rates.
Please correct me if I’m wrong somewhere. I am ...
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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.
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analytical formula for FV of fixed rate of a IRS [closed]
IRS plain vanilla
- expiry in 5 years
- principal is 1$
- semianual payment
How could the analytical formula be derived for the fair value of the fixed rate (initially no value of the swap)?
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Swaption valuation across time using vcub
On Bloomberg one has access to the rates vol cube with the VCUB function. For a given currency, today, one sees Black implied volatilities for swaptions of various expiries and strikes, for forward ...
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Multi-legged Swap pricing
can anyone guide me how to price a multi-legged swap and whether I need Monte Carlo / LMM based approach or if there is a closed form solution.
Receive leg
"Libor 3m +1%"
Payment leg
If Libor is ...
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What's the difference between instantaneous forward rates and observable forward rates?
Source:
http://docs.fincad.com/support/developerFunc/mathref/LIBORMarketModel.htm
"In contrast to models that evolve the instantaneous short rate (Hull-White, Black-Karasinski models) or ...
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Difference between IRS and OIS
Is the understanding right that OIS can be accessed only by banks whereas IRS is for corporates.
Also, since corporates borrow at Libor + spread, to hedge Libor I use IRS.
Banks can borrow overnight ...
