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Questions tagged [libor]

The tag has no usage guidance.

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Analyse correlation between LIBOR (quote in yield) and MSCI AC World (in dollars)

How would you analyse the correlation between LIBOR and MXWD? My initial intention was to get the log return of MXWD and take the opposite of the log return of the LIBOR yield (because when yield ...
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0answers
30 views

How is a LIBOR Market Model volatility skew determined?

LIBOR based interest rates are derived from the prices (supply / demand) of swaptions, caps and floors. These prices are generally quoted in yield vols. Their prices are given by the Black formula. ...
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1answer
83 views

Black Scholes- Options and OIS

I have 2 questions. In the Black Scholes formula for currency options, where does forward premium come in? Volatility will be a historic parameter, so which component considers fwd premia. Typically,...
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1answer
129 views

IMM Swaps - Accrual & Fixing Schedule

I am wondering how accrual periods & reset dates on Quarterly-IMM swaps are different to normal swaps (in terms of conventions). For example: Normal Swap: ...
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1answer
366 views

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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3answers
111 views

Can you model the LIBOR rate as a geometric Brownian motion?

i.e. The LIBOR rate is driven in the same way as a stock price in the Black Scholes model. For example let $R_t$ denote the LIBOR rate at time t. the stochastic differential equation (sde) would take ...
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3answers
235 views

Why is there a convexity adjustment if the payment date differs from Libor end date?

A 3 month LIBOR that fixing at $T$, paying in 3 months does not have a convexity adjustment. However, 3 month LIBOR fixing at $T$, paying in 6 months needs a convexity adjustment. How is this shown ...
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1answer
64 views

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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1answer
89 views

Libor Market Model Implementation

I'm trying to implement an LMM-MultiCurve for caplet pricing following the analytical formula mentioned in this article (pg 20): https://www.researchgate.net/publication/...
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1answer
490 views

Swap Curve and Forward Libor Rates

How does the (interest rate) swap curve incorporate forward libor expectations?
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1answer
65 views

Why is LIBOR rate smoother than the US treasury rate?

Compare the daily rate graphs of LIBOR and US Treasury bill, the former is a lot smoother than the latter. Is there any reason for this?
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1answer
1k views

Dual Curve Bootstrapping - When to OIS discount?

I am a new quant and I am trying to understand some of the specifics of dual curve bootstrapping. For concreteness, suppose I want to build a Libor forward curve. From what I understand OIS ...
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0answers
31 views

Any Suggestion for Credit Risk Measure for Banking Industry in Turkey?

I need a measure that will proxy for overall credit risk in the banking industry of Turkey. The literature offers LIBOR-OIS spread and Moody's Baa-Aaa spread as strong candidates. However, these ...
2
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1answer
532 views

Why is Overnight LIBOR lower than BoE Base Rate?

According to this site, the current overnight GBP LIBOR is 0.45638%, and the Bank of England base rate is 0.5%. My understanding is that the overnight LIBOR should always be higher than the base rate,...
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1answer
163 views

Dynamics of LIBOR foward rate under T-forward measure

Assume that under the physical measure $\mathbb{P}$ we have for the LIBOR forward rate $L(t):=L(t;S,T) = \frac{1}{T-S}\left(\frac{P(t,S)}{P(t,T)}-1\right)$ that $$ \mathrm{d}L(t) = L(t)\left(\mu(t)\...
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1answer
72 views

Libor Swap Rates

In a 5 year Libor Swap, say fixed vs. 3 months Libor, what is the credit risk reflected by the fixed leg ? (I'm ignoring counterparty credit risk). Would the fixed leg reflect 3 month Libor quoting ...
2
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1answer
591 views

Total Return Swaps and Borrow Cost Relationship

If an investor is long a Total Return Swap (TRS), they get the total return (ie, including dividend) performance and usually pay LIBOR minus a spread. This spread should trade ...
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2answers
524 views

Properly interpreting LIBOR curves?

I have a confusion regarding LIBOR curves. I understand what LIBOR means, but what exactly is meant by a LIBOR curve? I would imagine a curve where on the x-axis is time and y-axis the 6-month LIBOR ...
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1answer
89 views

What's the most direct hedge on rising 12-month LIBOR rate for retail investors?

What is the most direct mechanism available to retail investors to profit from (i.e. hedge against) a future increase in the 12-month LIBOR rate? e.g. The 12-month LIBOR rate is 2.29% as of 2/1/2018. ...
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1answer
211 views

Normal Libor Market Model

Is anybody using normal Libor Market Model (LMM) (as opposed to shifted lognormal LMM)? It could be one of the approaches to dealing with negative rates. If you do, have you encountered any ...
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1answer
151 views

How do I value uncollaterised swaps?

Do I need to discount using the OIS curve? Then add some sort of FVA adjustment over and above the CVA/DVA? How do I work out a banks cost of funding? Any help would be greatly appreciated. ...
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1answer
154 views

Convexity adjustment when payment if after interest natural term?

I've been working with a convexity adjustment for an interest rate payoff and the next question came to me: The usual problem that gives rise to the convexity adjustment I'm referring to is as ...
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1answer
465 views

Change of measure between T-forward and T*-forward contract?

I am trying to prove the need of a convexity adjustment to a forward rate by calculating the next expectation: \begin{align*} P(t_0, T_s)E^{T_s}\big(L(T_s, T_s, T_e) \mid \mathcal{F}_{t_0}\big). \end{...
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0answers
126 views

volatility term structure calibration

As is well known in order to calibrate an interest rate model (i.e. hull-white, LMM) i need to use the current market yield curve and volatility. But in the case I want to calibrate the model in a ...
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1answer
158 views

Floating leg of a standard swap still has a value at par when we use the OIS as discount factor?

Does a bond paying floating coupon LIBOR, still has the value at par when we use the OIS as discount factor? It seems only when ...
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1answer
224 views

Discount curve and payment frequency

In case of uncollateralised trades, where we use LIBOR rates for discounting, does the LIBOR tenor have to match with the payment frequency? For example, one of the swap leg pays USD floating amount ...
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1answer
954 views

Collateralized Interest Rate Swap

I am struggeling with the wording "Collateralized" IRS and try to get an understanding out of it based on an example. Especially what it means that in the multi curve models the expectations are ...
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1answer
5k views

What does it mean to pay USD FRA-OIS?

Would just like to check my understanding. If I were to pay USD FRA-OIS, does it mean I'm paying the OIS leg and receiving fixed? And the fixed is because the 3mL is fixed at the start of the period/...
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1answer
114 views

How are LIBOR rates beyond 12M arrived at? [closed]

I understand LIBOR rates quoted on a daily basis upto 12 M tenors. But how are rates beyond 12M tenor estimated. I got this question from an interviewer.
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1answer
585 views

Is LIBOR a spot rate?

Can we use USD LIBOR as spot rates for discounting? If we have overnight LIBOR and say 1 month LIBOR how to compute 16 day LIBOR? Can we do interpolation?
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1answer
973 views

Define the settlement date of Libor. Where to get them

I am having problems understanding what day is the settlement date for a libor rate, and how to find it for a given rate, e.g., Overnight, 1-Week, etc?
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1answer
384 views

Questions about Markit rates curve bootstrapping

I am reading the following two Markit documents concerning the bootstrapping of respectively the USD rates curve and the EUR, GBP, JPY, CHF, CAD, HKD, SGD, AUD and NZD rates curves. (Both versions are ...
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1answer
157 views

Why change numeraire for the LIBOR Market Model

There are two form of LIBOR Market Model that has a drift introduced. I would like to know in plain english explanation why do practitioners use these changes of measure. Are there any significance to ...
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2answers
6k views

A libor curve VS A 3-month or 6-month libor curve

I'm very confused about the terms regarding libor curves in general. When people talk about libor curve, I picture it as a curve with different libor maturities (i.e. 1 week, 1 month, 3-month and 6-...
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1answer
162 views

Does this trade have a name?

Ok so I got this idea, it's very simple so I know I'm not the only one who has thought about it. It is a pairs trade between long and short term treasury swaps, and goes as follows: Going by ...
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3answers
474 views

What does LIBOR really represent?

LIBOR - rate at which banks in LONDON would lend to each other. Is there a similar index for banks in New York (or any other major financial city) would lend to each other? For example, what is the ...
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1answer
170 views

One week LIBOR?

Are there any commonly traded instruments that would allow one to bootstrap a one week LIBOR curve? If not, is there some alternate way to value forward starting swaps with a short first period that ...
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2answers
740 views

6 month curve from 3 month forward rate agreements

Is it possible to bootstrap at least an approximate 6 month LIBOR curve (actually NIBOR, for Norway, in my case) if rates for 3 month FRAs are known? For example, say we know the rates for 1x4, 7x10, ...
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1answer
63 views

Relation between Libor market model and Black76 with time-dependent vola

The Black76 model uses a lognormal process to model the forward rate $L_1(t)$ from $T_1$ to $T_2$ at time $t$, $$dL_1(t) \ = \ \mu(t) L_1(t) dt + \sigma(t) L_1(t) dW_t$$ By switching to the $T_2$-...
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1answer
1k views

How to calculate fair 3s1s basis levels

How would one calculate the fair level of 3s1s single currency basis swaps using simply the 1m & 3m libors and ois levels? (so you have fra-ois spread levels in both) I understand that as the FRA-...
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1answer
55 views

What is time 0 price of Libor starting t for the period $t$ to $t+\delta t$

I was asked this in an interview. The correct answer, I was told, follow from this argument Let $L_0[0,t]$ denote the time 0 price of Libor for period $0$ to $t$. Let $L_0[t,t+\delta_t]$ denote the ...
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1answer
1k views

Calculating Implied Forward Rates from Eurodollar Futures Quotes

I'm trying to calculate the implied forward rates of the Eurodollar (USD) curve, knowing that the Eurodollar curve is supposed to be a mirror of the yield curve (else arb). I have this formula for ...
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1answer
1k views

Risk-free: why LIBOR pre-crisis and OIS now

Quick question as a follow-up to this post: why was LIBOR used instead of OIS pre-2007 for the risk-free rate proxy? Please correct me if I am getting this mixed up, but from what I've seen, it ...
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1answer
266 views

LMM & multiple curves

I was reading through a paper that attempted to present a theoretical explanation for the divergence in value of different LIBOR tenors (and thus for the use of different curves for different tenors). ...
2
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1answer
860 views

Constructing Swap Curve from LIBOR

Say I'm considering a long maturity fixed rate swap, for instance 20 years paid semi annually. Now I want to find the fixed rate for this hypothetical swap. I understand that this fixed rate is going ...
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2answers
182 views

Does LIBOR in USD reflect short term interest rates in the U.S.?

The London Interbank Offered Rate (LIBOR) is an indicative average interest rate at which a selection of banks (the panel banks) are prepared to lend one another unsecured funds on the London money ...
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4answers
772 views

Exploding Libor Rates in Libor Market Model

I have implemented the Libor Market Model in Matlab. When I generate a number of paths, I notice that some of them explode. Does anybody have an idea what could cause this? I already tried solving ...
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1answer
814 views

LIBOR Quoting Conventions

I have been trying to build a NSS parameterization of LIBOR term structure, and have confused myself over how all the dates are dealt with. On https://www.theice.com/publicdocs/futures/...
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1answer
741 views

LIBOR rates from Vasicek/Hull-White model?

I am somehow puzzled by the following problem: LIBOR rates are forward rates for an interbank loan for 1M or 3M (let's limit the range of possibilities to these two cases). Assuming that I have ...
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1answer
383 views

LIBOR 3M and 1M from Vasicek model

I would like to discuss my approach toward modelling of interest rates with respect to its downsides and advantages. My problem is to forecast daily LIBOR 3M and LIBOR 1M over a particular time ...