Questions tagged [libor]
LIBOR was the London Inter-Bank Offered Rate. It has been replaced by The SOFR (Secured Overnight Financing Rate).
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Rate interpolation in Libor Market Model
Libor Market Model (LMM) models the interest rate market by simulating a set of simply compounded, non-overlapping Libor rates which reset and mature on predefined dates. How do I obtain from them a ...
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For which instruments performs SABR/LMM better than LMM?
For which class of instruments the SABR/LIBOR Market Model does perform better than the classical LIBOR Market Model?
The LIBOR Market Model
The LIBOR Market Model — also known as Brace, Gatarek, ...
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LIBOR Cessation: Construction of Term-RFRs as LIBOR Fallbacks; Forward vs. Backward Looking
This question emerged from comments in this feed: OIS rate to build Term structure.
I was wondering how the float leg of an IRS will look like in a post-LIBOR world. Assume the following time-line, ...
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What is the market standard for IR option pricing when moving to SOFR
From books it looks like market standards to price IR options, like swaptions, are SABR, LMM or mix of the two (SABR-LMM).
But LMM models the forward LIBOR rate. What will happen to it once LIBOR ...
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Where do swap rates and/or long-term forward rates come from?
I apologize if this is supposed to be obvious, but ... . Libor spot rates are quoted up to a year, beyond that one can use Eurodollar futures to continue to build the curve. Let's say up to 3 years. ...
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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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Why is USD LIBOR used for USD denominated securities?
I am just starting on Interest Rate Swaps & curve construction. While reading few materials on Interest Rate Swap, it's indicated for e.g. "Floating Coupon Index: 6 month USD LIBOR".
LIBOR is ...
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Is SOFR to replace LIBOR or Fed Fund Rate or both
I am a bit confused on what is going on regarding the new benchmark rate SOFR. My understanding is that SOFR is to replace Libor. However, I also get information on Fed fund OIS discounting is ...
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Why banks borrow from each other
I was reading on the topic, and would like to be sure that my understanding is correct. For the benchmark I would consider American banking system as I've mostly used sources such as FRS and Federal ...
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Do you have a validation set for Libor Market Model implementation?
I'm trying to calibrate a Libor Market Model (LMM) in Matlab with my user-defined function, not their package.
I already fitted the market volatilities using SABR but failed to simulate the ...
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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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Why would a 6M LIBOR rate be significantly above 3M LIBOR, ED futures and swap rates?
Just was just looking at the various interest rates and noticed this:
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Why is the LMM with mixture dynamics (Brigo & Mercurio) inconsistent for the pricing of exotics?
I am reading about the LMM with lognormal-mixture dynamics. Consider the following dynamics for the forward rate $F_{i}(t)$ fixing at $T_{i-1}$ and paying at $T_i$:
\begin{align}
dF_{i}(t) = (F_i (t) +...
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What can be used to replace the Libor - OIS indicator in assessing fear in money markets?
Libor is dead and used to be uncollateralised. Libor-OIS was a useful indicator to measure the spread between risk free (central bank e.g. Fed funds) rate and the interbank lending rate. For example ...
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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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Seeming arbitrage in excess reserves
In the US banks are required to store 10% of their deposits in cash in the form of Fed Funds. Due to misbalance of demand and supply, some banks borrow such cash from others; the volume averaged ...
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Why is the LIBOR-market model free of arbitrage?
Recently I have been reading a lot on the market models.
One thing that keeps escaping me - why is the Libor-market model (LMM) assumed to e free of aritrage in continuous time ?
To me this means ...
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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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Is there an Australian Interbank Rate?
Most widely used Interbank Rates are LIBOR, EURIBOR. Then I read online on SIBOR (Singapore).
It says Canda, US are following LIBOR as well. So for Australia, is there a dedicated interbank rate like ...
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Libor Market Model: numeraire change
I am currently studying the Libor forward market model, and although I get the mechanics behind the main arguments, I still do not have an intuitive idea of what's exactly the objective behind ...
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Curve building dates overlapping impact on discount factor
I'm building a short end of the libor curve using deposit & fra due to overlapping in dates I get wrong values of Discount factor, here's the data i'm working with:
My today date is : 23/10/2019 ...
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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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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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Uncollateralised trades in Libor transition
Consider an OTC derivative traded with no CSA agreement, i.e. the trade is uncollateralised. My understanding is that a Libor swap curve is used in this case to discount the cashflows for this ...
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Difference between OIS Rate and Risk-Free Rate
What exactly is the difference between the fixed rate of an OIS and the risk-free rate in that currency. For example, in the US the OIS rate vs. risk-free rate SOFR or in the UK the OIS rate vs. the ...
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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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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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Forward starting zero-coupon bonds
We trivially have that:
$$\frac{Z(t_0,t_1)}{Z(t_0,t_2)}=1+\tau L(t_0,t_1,t_2)$$
Where $L(t_0,t_1,t_2)$ is the forward Libor between $t_1$ and $t_2$, as of $t_0$.
Simply inverting this relationship ...
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Annualised Sharpe Ratio for Index vs Index Benchmarking
I am currently writing a paper about the performance characteristics of alternative energy equity indexes and am therefore comparing them to their benchmark indexes (msci world, etc). To calculate the ...
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Accrued interest calculation for floaters linked to O/N rates (such as SOFR)
It is known that between 2021 and 2022, LIBOR rates will cease to exist. Therefore bond issuers started to link their newly issued floaters to O/N rates based on actual trades such as SOFR for USD or €...
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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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Is this an inconsistency between Swap and LIBOR?
I'm a little confused by what I see as an inconsistency between quoted £ swap rates and £ LIBOR.
From the FT on 25/4/14:
1-year Swap (semi-annual): Bid - $0.63\%$; Ask - $0.66\%$
LIBOR: 6-month - $R_{...
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Basic LIBOR curve question
I'm new to the quant finance and have a very basic question about LIBOR curve.
LIBOR is published every day for 4 different tenors (1M, 3M, 6M, 1Y), and each rate means how much annual interest ...
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3M curve vs 6M Curve, which one to use for valuation of IR Derivatrives
Sorry, this might be basic for some of you but I'm very confused when it comes to know which curve (6m or 3m) we can use for valuations of swaps and swaptions. Could someone please explain when to use ...
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2 Ways to Define/Calculate "FVA"? - Same or Different? (Simple XVA Question)
I've got a very simple question on 2 different ways of defining or calculating the FVA of an uncollateralized swap.
One definition I've often seen is that the FVA is the difference in the net present ...
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Is there a difference between JPY TONA and JPY TONAR?
Wikipedia defines TONAR as "Tokyo Overnight Average Rate".
The official Bank of Jappan website mentions TONA, rather than TONAR.
I suspect the two, TONAR and TONA, are in fact two terms ...
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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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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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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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OIS rate to build Term structure
There are some discussions (e.g. Difference between OIS Rate and Fed Funds Rate) on usage of OIS rate to build the Libor term ...
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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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Spread over LIBOR on a Equity Swap
Does anyone how banks determine the spread over LIBOR on a Equity Swap?
Example:
Party A pays the return on SPTR to Party B
Party B pays 1M LIBOR + 40 bps to Party A
Does anyone know how the 40 ...
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what is the definition of resetting tenor and time to maturity tenor in libor rates
I have a question about the definition and understanding of libor rates. We have the time to maturity tenor, $T$, which is the time over which i borrow or lend money. For libor we also have the reset ...
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Compare equity option volatility under SOFR vs LIBOR
We know that after the big bang from LIBOR to SOFR, LIBOR will eventually disappear.
This brings up one question that I do not have a clue to answer: How to evaluate derivative in a consistent manner ...
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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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LIBOR with different tenor
Let $F(t;S,T)$ be the forward rate from $S$ to $T$ seen at time $t$, and $I$ be one of tenors, i.e. $I$ is one of {1M, 3M, 6M, 12M}. Then the forward curve $t\mapsto F(0;t,t+I)$ is $I$-forward curve.
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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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Pricing eurodollar futures
How are Eurodollar futures priced in practice?
What I already know: The implied 3 Months rate by the futures is 100-price, since it matches the payoff. Using daily LIBOR rates, one should be able to ...
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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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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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