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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95 views

Can you hedge a derivative with a CASH|spot product or does it have to be another derivative instrument

Consider you have a SWAP (any kind) to hedge this SWAP, you will most likely use another Derivative,but can you use a cash|spot product to hedge this. Like Cash Equity or FX Spot
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1answer
512 views

Modified Duration of Overnight Index Swaps

Is the modified duration of an overnight index swap zero or close to zero?
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1answer
2k views

What is the difference between a recovery swap and a CDS?

As I understand it, recovery swaps and CDS are both used to privide hedging against the default risk of a loan. What is the difference between them?
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2answers
581 views

Matlab; How to specify Coupon frequency for Interest Rate Swap

I'm trying to price an interest rate swap and would like to change the default coupon payment frequency from 1 a year to 2 or 4 a year. I'm using ...
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5answers
19k views

Convexity adjustment for a forward swap rate

I recently heard that for a forward swap rate (for example, the fixed rate of a swap that will start in one year and end in five years), I need to do a convexity adjustment in order to get the right ...
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2answers
719 views

What is the instantaneous P&L of a Variance Swap?

What is the instantaneous P&L of a variance swap. Is it $(\sigma^{2}_{t}-\sigma^{2}_{implied})dt$?
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2answers
12k views

Cross Currency Swap Pricing in nowadays environment

Multicurve setting has now become the new paradigm for vanilla swap valuation. For the record I give here (without getting into too much details) the methodoloy for pricing Euribor3M swaps in this ...
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2answers
4k views

Fair swap rate of an amortizing swap

Recently I came across the problem of amortizing swaps. This is an agreement, where fixed payments and floating payments (e.g. 3-months LIBOR + spread) are exchanged based on a notional that is ...
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3answers
9k views

How to hedge the fixed leg of a swap contract?

I happened to get this question for Fixed Income Swap contract. (let's assume it's it's not cross currency). If the fixed leg is paying 10% interest rate in this contract, but in the market the ...
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1answer
74 views

Why might a manager consider using an interest-rate in which the notional principal amount declines over time?

Say swap would be used to convert the payments of its portfolio of fixed-rate residential mortgage loans into a floating payment. Why might a manager consider using an interest-rate in which the ...
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0answers
985 views

How to calculate cf and interest accruals of the swap?

How to calculate to calculate daily interest accruals and cashflows for the full term of the swap, given notional, effective date, maturity date: (total one year), accrual: ACT/360 payment: semi-...
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0answers
612 views

How to calculate a the PFE for a Swaption?

How do you calculate the Potential Future Exposure (PFE) for a swaption? Do you incorporate the dynamics of implied volatility when you are running your simulations? Is there a standard way to ...
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1answer
2k views

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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1answer
7k views

Equivalency of FX forwards and FX basis swaps for risk-management purposes

Can one deem an FX float-to-float swap and a FX forward equivalent on dates immediately after repricing? The reason I am asking, I am hedging something that can be modeled via an FX forward, I was ...
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2answers
1k views

Varswap Basis - What is it in practice?

What is the varswap basis? I am not completely sure what this number represents. Is it the basis between the estimated future realized volatility and the vol surface implied volatilty at a specified ...
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5answers
18k views

Why would an investor trade a variance swap over a volatility swap?

Why would an investor trade a variance swap over a volatility swap? Is it simply related to the leverage involved in a Var (i.e. sigma-squared) or is there something else to it?
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2answers
427 views

Is it true that pricing an IR swap doesn't require any stochastic model but calculation of the PFE of an IR swap would?

Pricing an IR swap doesn't require any stochastic model but calculation of the PFE for an IR swap would require the Hull White Model or any other stochastic short rate or forward rate model. Is this ...
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1answer
12k views

What is the reason for the convexity adjustment when pricing a constant maturity swap (CMS)?

I'm trying to wrap my head around pricing a Constant Maturity Swap (CMS). Let's imagine the following deal: 6m LIBOR in one direction, 10y swap rate in the other. The discount curve is derived from ...
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1answer
759 views

How to build the short end of a zero coupon curve for non-core Eurozone countries?

I am in the process of building zero coupon curves for some countries in the Eurozone. I have the following data sets: Euribor and EONIA Swap rates Bond price and yields The bond prices (and thus ...
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1answer
3k views

Basket equity swap

What are the advantages of buying basket equity swaps derivative compared to single equity swap? Will correlation play a role in basket equity swap? Thanks in advance