Questions tagged [swaps]

SWAPs are a common name for exchange operations between two (or more) counter-parties with various financial instruments like cashflows (IRS), currency (XCCY), credit risk (CDS), et cetera

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Bloomberg terminal swap zero curve calculation

I would like to ask about swap zero curve calculation algorithm by Bloomberg terminal. This is a plain vanilla CZK interest rate swap, fixing the Prague IBOR. My task is to calculate zero rates from ...
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How to build a cross currency swap pricer?

We're looking to build a pricer to convert a funding spread in a given currency over a specific funding basis e.g. 20 bps EUR 3m€ and convert it to a funding spread to a different currency with a ...
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heding bond risk with swap

How would a bond trader hedge his/her interest rate risk? A nature way is to hedge it with interest rate swap. Is this a choice in practice ? is their any risks associating with this hedging strategy. ...
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702 views

Why is the fair strike of a variance swap called implied volatility?

Probably an easy question for some, but I noticed most of my co-workers call the fair strike of a variance swap implied volatility. Why is that ?
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470 views

Hedging with variance swaps: how to calculate the notional

Returns on an asset are negatively correlated with own variance, and I would like to set up a hedge with a variance swap (no options are traded). I need to decide on the notional of the swap: any ...
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Compute I-spread from ASW-spread (or vice versa)

The I-spread ("mid swap spread" or yield-yield spread) is a standlone measure of credit risk, a security against matched maturity vanilla swap rate. Consider a package in which the investor receives ...
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377 views

For a fixed-fixed cross currency swap, can I use a curve with two floating legs to discount the cash flows?

I'm doing a USD to INR fixed-to-fixed cross currency swap. The default curve has a fixed and a floating rate. However, the curve that I'm looking to use has floating rates on both legs. Would this ...
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703 views

Obtaining swaption prices from lognormal volatility quotes

I am working with the following dataset from quandl: https://www.quandl.com/databases/CSWO (I'm using the sample dataset only). My question is how to obtain the swaption prices from the quotes given. ...
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Why is a variance swap long skew?

I can appreciate the mathematical derivation, but can anyone explain this in a more intuitive sense? I often come across the mistaken belief that due to the replicating portfolio being long more ...
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Why is the SOFR par coupon rate trading higher than Fed funds?

SOFR is a 'secured rate' while the latter is not. Therefore, I would assume a 1y SOFR swap to trade at a lower par rate than a 1y fed funds overnight index swap. Any insights would be greatly ...
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382 views

Calculating PnL on Swap Spread Trade

Say I am a long a 10Y US govt. bond and short (i.e., pay fixed) a 10Y US IRS. The swap spread moves, for example, from -0.25 to -0.3. What do I need to calculate P&L (approximately)? Are such ...
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How to calculate a forward-starting swap with forward equations?

I have been trying to resolve this problem for some time but I cannot get the correct answer. The problem is the following one. Compute the initial value of a forward-starting swap that begins at ...
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539 views

Vol swaps Vol of vol

I an quite unfamiliar with those products and would like to understand why they require a vol of vol model for pricing. The variance swap is replicated (assuming no cash dividends) with a delta hedged ...
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Overnight Index Swaps

Just a very quick general question regarding the OIS market. Is it common place on termsheets to state a PV Notional and additionally a FV notional, if so what is the purpose of this and does market ...
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112 views

Turning an amortising swaption into a normal swaption

Is there a way to enter a trading strategy in which the notional of the cashflows of an amortising swaption become all the same? For example, imagine the notional for the first four cashflows of an ...
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108 views

On the buyside, when people quote a 'price' for a plain vanilla interest rate swap, does it include accrued interest?

The valuation date falls in between coupon payment days on the swap, does the 'price' of a swap understood to include the accrued interest (interest from the previous payment date to the valuation ...
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490 views

Collateralized / uncollateralized swap

Is a fully collateralized interest rate swap considered free of counterparty credit risk? Or close to risk free? Therefore discounted by the rate that best proxies the risk-free rate (which is the OIS-...
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131 views

VarSwap PnL formula

I came across this formula for the varswap PNL: let $r_i$ be the log return over $[t_i,t_{i+1}]$ and suppose we risk manage the VS at a fixed implied volatility sigma, the PnL of (the payoff) over ...
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Forward and discount curves for cross currency swaps

I have a EUR-GBP cross currency swap, collateralised in GBP, each leg is paying 3m EURIBOR/LIBOR respectively. I know GBP leg can be modelled with 3m LIBOR forward curve and GBP OIS discount curve. ...
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How to compute Overnight Index Swap (OIS) fixed rate?

I understand that periodically participants exchange the difference in the fixed rate and the daily compounded overnight floating rates. My question is how should one compute the fixed rate? What ...
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What are advantages of expressing swaps this way?

On page 420 of Bailey's "The Economics of Financial Markets" textbook there is an example: "For example, suppose that [in a plain vanilla interest rate swap] the company agrees to pay 9.25 per cent ...
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1answer
193 views

Value at Risk for a plain vanilla interest rate swap

Hello I have question regarding the computations of the Value at Risk for a plain vanilla interest rate swap (i.e. same currency and fixed-for-floating). I have a data set consisting of the Swap ...
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139 views

ISDA Convention for definition of IRS maturities

Could someone indicate me what is the ISDA convention for IRS maturity dates ? I mean, when two counterparties enter in a new IRS, is the maturity date to be defined in the contract totally free (ex: ...
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varswap replication doubt

I have a doubt regarding the varswap replication- I know the portfolio of options with proper weights is a static one, and that there is a dynamic position required in underlying. My confusion is ...
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1answer
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Valuation of an FX Swap

What is the value of an FX swap? As far as I understand, a typical example of an FX swap would be the following: company A agrees to lend 1000,000.00 euros to B and in exchange B agrees to lend 1000,...
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678 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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998 views

Basis risk, spreads and discounting

There is a lot of information to be read on basis risk, spreads and discounting. After reading some information, I have an idea about what basis risk is about and why this type of risks should be ...
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Transform a 3M FRA Rate to a 6M FRA Rate

I have a question whether it is possible to transform 3M FRA rates to 6M FRA rates without having any spreads available. Let's give an example: FRA 3M: FRA 1x4 FRA 2x5 FRA 3x6 FRA 4x7 FRA 5x8 FRA ...
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1answer
367 views

Build a swap curve / Swap Hedging

I’m going through the exercise of building a swap curve. I understand I need libor rates for the short-end, futures for the medium-end, and swap rates for the long-end. Should I be using bid, mid, ...
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170 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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Quantlib: Getting error trying to price a Swap

I have bootstrapped my curve based on end-of-day data for 24th Nov, 2017 I am then using that to price a off-market swap as below: ...
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In curve building: How to calculate interest rate (discount factor) for period before first known effective date

I am building a curve using par swaps rates. For example, I have the following two semi-annual swaps for input Duration start end rate 1year 14-Nov-2011 14-Nov-2012 ...
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Given QuantLib Python VanillaSwap object, how to get the iborIndex of the swap object?

I'm currently using QuantLib Python. Let's say that I've got a VanillaSwap object: import QuantLib as ql swap_obj = ql.VanillaSwap(... , iborIndex , ...) How can ...
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1answer
921 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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Pricing of Swaption by Proxy and Monte Carlo

here's the problem. Suppose you want to compute the price of a Call option on a Swap contract. Let $T$ and $T+S$ the times (in year fraction) where the Swap lives and suppose that the fluxes of the ...
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326 views

Using PCA model to capture Risk on a box trade on Swap spread

I have PCA models to capture Risk for Swaps trading I have a question regarding a multi-leg package which has 4 legs (box spread). Typically, a box spread is a switch between two Swap Spread, where ...
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356 views

Pricing a Vanilla swap between coupons; What rates to use?

Vanilla Swap question. Entered into a 5Y fixed for floating HUF swap. Fixed is annual coupons, Float is semi-annual coupons. 1 month later I want to price it. I set up my future values for Fixed ...
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628 views

Why do we swap the bond value and par value at the beginning in the Asset Swap

I may asked this question before, but I still don't understand. We know that in a asset swap, A pays the fixed coupon on the bond B pays LIBOR + Spread The exchanges take place regardless of ...
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Pricing Mark-to-Market Basis Cross Currency Swaps and Subsequently Constant Notional

Currently I'm working on my Master Thesis in Quant Finance in cooperation with a company. I would like to thank you very much for your time and help in advance! In my thesis I want to price Mark-to-...
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Why is CSA currency OIS rate used in discounting instead of local currency OIS?

I have been struggling to understand the logic behind cross currency OIS discounting (where cash flows happen in different currencies than the collateral is paid). I will illustrate my question ...
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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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389 views

FX risk of basis swap in foreign currencies

As an US investor, if I enter a basis swap in a foreign currency (say Euribor-Eonia basis in EUR), and book my trade using USD. I must have some sort of FX risk, right? How do I hedge such risk? I'd ...
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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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Does delta adjusted exposure make sense for an equity variance swap?

The software vendor that I am using for the calculation of the market risk exposure claim that they cannot compute the delta adjusted of the equity variance swap positions since there is no specific ...
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Is the “swap curve” synonymous with the “yield curve”?

Looking at the swap curve construction here: http://www.bankofcanada.ca/wp-content/uploads/2010/01/wp00-17.pdf it seems to be constructed in an identical fashion as the yield curve as described here:...
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Does an Interest Rate Swap has a Vega component?

I am a bit confused on how you calculate vega for Interest Rate Swap. One argument is that IR Swap is a combination of fixed rate bond and floating rate bond. Since a bond has no vega component, IR ...
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formula for physical DV01 of interest rate swap

Most answers to the question "what is the dv01 of an interest rate swap" are along the lines of: "compute the difference between the price of the swap and its price using a curve perturbed by 1 basis ...
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What curve are you shifting when you calculate DV01 for a swap?

I understand that a general swap has 4 curves attached to it: the flat forecast curve associated with the fixed leg, the forecast curve associated with the floating leg, the fixed leg discount curve ...
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Replicating Log Contract - Errors Introduced by Jumps

In the GS Research Note about Volatility Swaps, it is shown that you can replicate a pure variance exposure (hedge) with only vanilla calls and puts, primarily thanks to the Carr-Madan formula of ...
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Why is convexity adjustment applied to swap price for a nonstandard swap, in simple terms?

Martinelli et al. show that when the 3-month Libor is replaced by the 3-month Libor forward rates (which are obtained from the spot zero-coupon yield) then the swap price depends only on zero-coupon ...