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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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286 views

Variance Swap Vega

I am currently reading the paper of Derman and al for my master thesis on Variance Swap. At one point one says that "The variance vega is largest when the option is ATM", considering here a call ...
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229 views

Variance swap “fast” models

As far as I understand, Variance Swap (VS for short) function as follows : no payment when entering the contract at maturity the VS buyer pays a strike $K^2$ and is paid (by the VS seller) the ...
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1answer
362 views

Hedge variance swapping by vanilla option(constant vega portfolio against underlying asset)

One book said hedging variance swaps $$I= \sqrt{\dfrac{1}{t}\int^t_0\sigma^2(S,t)}d t$$ by vanilla option,say value $V(S,E;\...
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3answers
866 views

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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1answer
98 views

Why there is some inhomogeneous term in the PDE of fixed income

We consider one factor driving model of fixed income product say short-term interest $r(t)=\lim\limits_{T\rightarrow t} R(t,T),$ $R(t,T)$ is yield i.e $$B(t,T)e^{(T-t)R(t,T)} = 1$$ Then we see ...
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1answer
503 views

Deltas and CC Basis Swaps

How do I calculate the dollar impact of basis change for a portfolio of cross currency basis swaps which hedged loans/bonds? I am thinking it might have something to do with delta and tenors but I ...
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1answer
471 views

Basis swap spread pricing and bootstrapping

Here is the expression of a basis floating versus floating swap where the first term is a forward CMS Swap leg and the second one is a forward BOR leg where X is the margin that would make equal both ...
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1answer
2k views

Interest Rate Swap DV01

thank you in advance anyways! I do have a question that drives me mad. How do i calculate the Swap DV01 for a Interest Rate Swap? I think for a bond i multiply the discounted cashflows times the ...
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1answer
209 views

Roll Convention for 7D Index

Any specific Roll Convention that I should use for Indexes with 7D tenor like CNY-CNREPOFIX=CFXS-Reuters or USD-SIFMA Municipal Swap Index ? What will be the Calculation Period Frequency or the ...
2
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1answer
659 views

How were OIS discount curves built before long-term OIS were liquid?

Many sources put the switch from LIBOR discounting to OIS discounting at some point in 2008, or perhaps a little earlier (the earliest I have seen is August 2007). It seems that this may be optimistic,...
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1answer
1k views

Swaption Trading

In most Banks, the Traders are provided with ATM Implied vols across different Swaption Expiry's and different Underlying Swap Maturities.(The ATM Implied Vol Cube) If the trader wants to trade an ...
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1answer
3k views

QuantLib Python Swap Yield Curve Bootstrapping Dates and Maturities

This is somewhat related to the question I asked here but simpler. I am trying to bootstrap a yield curve from swaps, and am having a problem with the dates/maturities that are coming out. The code ...
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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
196 views

What is mathematically rigorous way to estimate floating swap cash flow in the future?

In vanilla swap, the FL payments is fixed on one date and paid on the next reset date. So the next payment is known. However, the payment after that is not known. What would be the best estimate of ...
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90 views

“At-the-money Implied as a Robust Approximation of the Volatility Swap Rate.” [closed]

Does anyone know where to get this paper? Carr, Peter and R. Lee, January 2004, "At-the-money Implied as a Robust Approximation of the Volatility Swap Rate." On google scholar the paper appears to ...
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1answer
1k views

Why is the overnight index swaps considered risk-free?

What I have understood is that the overnight index swap is bootstrapped to discount rates/zero rates that in their turn are considered risk free. The reason being, that the reference rate of such swap ...
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57 views

How to get swap reporting data from repositories ICE and CME?

Bloomberg and DTCC both release swap reporting data in form of downloadable files which can be analyzed later on. I have been looking for the same on ICE and CME sites, but couldn't find. How can I ...
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1answer
563 views

Using quantlib to price swaps with different payment and calculation resets for floating leg

I understand the VanillaSwap object assumes that payment and calculation resets are the same, so is there any way we could use quantlib to price a swap with different reset and calculation frequencies?...
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2answers
1k views

Plain Vanilla Interest Rate Swap

I'm trying to build an intuitive understanding of the following The price of the replicating portfolio at time $t$ of the floating rate receiver is $P_t^{swap}=P_{t,t_0}-P_{t,t_N}-\bar{R}\sum_{n=1}^...
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7k views

Calculate interest rate swap curve from Eurodollar futures price

So I was reading Robert McDonald's "Derivatives Markets" and it says Eurodollar futures price can be used to obtain a strip of forward interest rates. We can then use this to obtain the implied ...
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3answers
4k views

Why do FX Swaps have Interest Rate Risk?

I know that FX Swaps have FX Risk, but why do FX Swaps have Interest Rate Risk as well? Need some guidance on this.
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1answer
298 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). ...
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1answer
1k views

Swaptions to calculate swap exposure for CVA

I am looking at using the swaption method to calculate the EPE and ENE on a swap over its life, to use in CVA/DVA calculations. I have a number of questions, how well does this method work in ...
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1answer
256 views

Dual discounted forward curve

I was wondering how to calculate the forward rates based on OIS discounting for the half year terms. I know how to do this for the full year terms -> just making sure that the two legs are equal to ...
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3answers
4k views

Cross Currency Swap pricing

I have seen two methods for calculating the value of a xccy swap - 1) Convert the future foreign payments to the base currency using forward FX rates, net with the base currency payments and ...
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1answer
127 views

Determining discount factors for non-standard maturities

Let's say we'd like to find a par rate for a 1 month forward starting 20-year interest rate swap. In this case, we'd need to discount cash flows for the payment periods shifted +1 month from standard ...
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0answers
84 views

Comparing Hedging Strategies

Say I am an American issuer, and I've issued some bond denominated in CAD. I've hedged the coupon by entering into an FX USD/CAD fixed for floating swap and I receive the fixed leg and pay floating, ...
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1answer
315 views

Swaption pricing

I am trying to understand the pricing of various types of swaptions. Suppose I have a swap that starts in 3 months time. How would I go about pricing a swaption on this swap in the following cases: ...
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3answers
13k views

What is a Constant Maturity Swap (CMS) rate?

I have been searching in books and on the internet for a basic definition and explanation of CMS rates, but I cannot find anything clear and simple. Can you explain (maybe with an example) what a CMS ...
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1answer
706 views

Roll convention applied to weekend swap maturity date

Suppose a swap is booked with maturity on June 19, 2016 (which is a Sunday). Accruals are adjusted according to the modified following roll convention and follow U.S. holidays. For the last cashflow ...
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2answers
131 views

Why would one prefer variance swaps over other instruments?

I understand that an investor who has a view on an underlying's variance would be tempted by a variance swap. But why would one prefer such a contract over another instrument whose value is based on ...
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1answer
282 views

Equivalency of FX forwards and FX fixed for fixed swaps? Are they still the same under multiple curves environment?

I am encountering two approaches for valuation of FX swaps (fixed for fixed, e.g. fixed USD payments for fixed EUR payments) which seem to result into different values although in theory they should ...
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1answer
9k views

How to work out the forward outright price from the bid/ask quotes?

I'm facing this problem: Spot AUD/USD is quoted at 0.7634/39; six-months swaps are 112.1/111.1; at what forward outright rate can a price taker sell USD value spot/6 months? On the spot side, ...
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158 views

Estimate the risk of swaptions

I would like to model OTM Swaptions. I can use some implementation of the Bachelier model (not B76 due to negative rates) and implied volatilities from Bloomberg. For 10Y X 10Y (10 years option ...
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1answer
151 views

Factor sensitivities for EURUSD swap

Trying to understand various risk factors for a EURUSD swap. While I understand why a EURUSD swap would have USD LIBOR, EURIBOR, EURUSD currency as risk factors, why is it that it would also have EUR ...
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0answers
70 views

How to run swapbyzero matlab function in a loop [closed]

I made a for loop in Matlab in which I price a swap by using the swapbyzero function. The swapbyzero function requires a rates structure created by using the intenvset function from matlab. The ...
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1answer
637 views

Convexity adjustment

I have a problem with the underlying assumption in the future/forward convexity adjustment. If I understand correctly, the assumption is, if I am long ED, I earn money when rates go down and invest ...
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2answers
162 views

Swap prices (preferably based on 3 month LIBOR)?

Where can I find a listing of forward swap rates based on libor. E.g. pricing on a swap of rates floating over 30 day libor for 3 year fixed, one year from now?
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1answer
2k views

Static and Dynamic Hedging of Vol/Var Swaps

Why can a variance swap be perfectly statically hedged whereas a volatility swap requires dynamic hedging? Possible reference request to the corresponding literature.
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1answer
964 views

By swap valuation, is accrued interest calculated?

If I treat the 2 legs as bonds, and I want to calculate the present value somewhere between 2 payment date, should I calculate accrued interest?
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2answers
152 views

Does a 1Y swap depend on zero curve beyond the 1Y point?

When using market swap rates to calibrate a discount curve, it seems that the PV of a 1Y swap depends on the zero curve at points beyond the 1Y mark. For example, a USD 1Y swap with trade date today (...
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2answers
2k views

Inflation-Linked Bonds & Asset Swap Spreads

I am trying to plot the asset swap spreads of government inflation-linked bonds (ILBs) versus the asset swap spread of government nominal (plain-vanilla) reference bonds. I used the article in the ...
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2answers
2k views

Is there any gamma in basis (i.e., floating for floating) interest rates swaps?

It is well known that vanilla fixed for floating swaps usually have a bit of gamma, but does a floating for floating (basis) swap have any? For the sake of simplicity, let's assume that both legs of ...
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1answer
2k views

Pricing of swaps

I have a (hopefully) elementary question about forex swaps. Most feeds will have a near and a far leg (or more legs for more exotic swaps). I appreciate that "buying the swap" involves locking in ...
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1answer
471 views

ACT/360 day convention in swap pricing

The floating leg of a USD swap has present value $$ PV = \sum_{i=1}^N \delta_i f_i p^d(t_i) $$ where the $\{t_i\}$ are the floating leg payment dates, $\delta_i$ is the accrual fraction between $t_{...
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2answers
115 views

Swap rate calculation if reference rate differs from risk free rates

I want to find a swap rate, for an IRS where the floating is Libor+x bp where x is a constant. I have a risk free curve which is not the libor curve. I also have the libor rates. How can I calculate ...
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1answer
249 views

Is the value of fixed swap leg independent of X, where the Floating Rate is say, LIBOR minus X%?

In my texts of swap valuation, the fixed leg is decided by calculating the following equation, say for a swap agreement where: Fixed Leg : $s(1)=s(t)$ Floating Leg : 1 year LIBOR - 25bps Term = 2 ...
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2answers
422 views

If floating leg in an arrears swap is paid on the date then valuing them is like predicting future

From what I am reading arrears swap are paid on the same day(actually, +2 business days for JPY and USD) as the reset date. To me then, a week before the reset date the floating rate is not known. ...
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1answer
135 views

Pricing homogeneous Basket Default Swap

Consider a basket with $K=10$ names. Default times of the names, $\tau_k$, are i.i.d. random variables with distribution $P(\tau_k \leq t) = 1 - e^{-\lambda t}$. Suppose that each name in the basket ...
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1answer
486 views

decompose correlation swap pnl

For a Variance swap we can split the pnl into a realized part and a "forward going" part. To be more precise: Assume we enter the trade at t0, and the variance swap has tenor T and a strike $Kvar$. ...