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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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12 views

How to change the Libor rate to Forward Libor rate in Swap?

The realised PV of a swap (notional is 1 ) is : $Swap(t)=∑^n_{i=1} τ*D(t,Ti)*[(L(Ti,Ti,Ti+ τ)−K)]$ How do we get the expression with forward rate : $Swap(t)=∑^n_{i=1} τ*D(t,Ti)*[(f(t,Ti,Ti+ τ)−K)]$ ...
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214 views

From Libor Curve rates to “forward” zero-coupons

I am provided a 6M euribor curve, constructed from FRA's and swaps of tenor 6M on the euro, as well an EONIA curve, constructed from zero-coupons EONIA swaps. Both curves are provided as functions $d\...
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28 views

How currency swap works for big companies bond and cash management

Suppose a big company A holds 10 Million USD at T+0, and A knows that it will pay 9.9 Million CHF to buy a bond at T+1, why would company A be willing to enter a currency swap to buy CHF and sell USD ...
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162 views

Why do big financial groups use fx swaps to manage cash?

Can someone help me with the logic that big companies' treasury department uses fx swap to manage their cash? An example would be much appreciated!
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1answer
80 views

Estimation of LIBOR 3M periods if the period is not exactly 3M months

When generating dates of interest rate swaps, even without stub periods, we sometimes end up with periods that are less than 3 months (say 87 day). In that case do we have to apply any kind of ...
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1answer
58 views

Counterparty exposure for a swap [closed]

What is the exact details of swap option whose PV gives the counterparty exposure at horizon of t=15months for a payer swap of strike 1% above ATM and length 5y starting at 2y?
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1answer
67 views

Curve building for a swap

I'm a student learning how to build a swap curve, I've deposit 6m rate = 5%, fra 6-12m rate = 5.8% and 12m-18m rate= 6% and swap 2y =7% and 3y swap rate = 7.5%. I get the correct discount factors for ...
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76 views

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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1answer
96 views

What happens to both sides of an inflation swap agreement if there is deflation?

If there is deflation does the Inflation receiver not only pay the fixed leg but also receives a reduced CPI? I.e. does he lose twice?
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37 views

Retrieve zero coupon curve from forwards

Let's suppose I am given a forward swap curve of a certain maturity (10Y). The curve is not very smooth and is decreasing but whatever. I have the curve : $S(0,t,t+T) = \frac{P(0,t) - P(0,t+T)}{\sum_{...
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161 views

For which would you expect the liquidity on instrument X to be the greatest: its spot, future, option or swap?

Would like $X$ to remain general, but if needed, let's say GBPUSD Exchange Rate. By liquidity I mean overal market volume across exchanges / ease of opening and closing positions / total notional ...
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1answer
105 views

Calculation cross-currency basis

I am trying to calculate cross-currency basis on the 3-month horizon for a certain set of currencies. The formula should be $ccb = F/S (1+y_{foreign currency}) - (1+y_{USD})$ where $y_{USD}$ is Libor ...
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1answer
66 views

S. Bossu's Correlation Swaps Model

I am reading Sebastien Bossu's "A new Approach For Modelling and Pricing Correlation Swaps" (link). I am recalling some of the definitions from the paper and would like to understand how to prove one ...
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39 views

Correlation coefficient without cash flows?

I'm an intern at a company and one of our tasks is to calculate the the probability of default of both participants of a Swap(a Client and a Bank), for which we first need the correlation coefficient ...
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1answer
96 views

What does **Long Call EURUSD** mean?

What does Long Call EURUSD mean? Does it mean Long Call EUR and Short Put USD? When we draw payoff do we consider only w.r.t. to CCY1 i.e. EUR in this case?
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how to derive yield curve from interest rate swap?

According to some textbooks, to derive the yield curve, quote overnight to 1 week: rates from interbank money market deposit, 1 month to 1 year: LIBOR; 1 year to 7 years: Interest Rate Swap; 7 ...
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77 views

How do the following aspects lead to U.S. Repo shortfalls

A major theme in the markets this past week has been the repo rate hikes and the sudden disappearance of liquidity. Although most are confused as to the main reason, there seems to be a consensus on ...
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How to calculate average entry price for perpetual swap contracts?

I'm trying to calculate the average entry price for perpetual swap contracts for use in back-testing a trading strategy, as per Bitmex's documentation: A Perpetual Contract is a derivative product ...
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1answer
40 views

<Credit Default Swap> Auction Recovery vs Fixed Recovery

What is the Difference between Auction Recovery CDS and Fixed Recovery CDS?
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1answer
102 views

Basis Swaps in Quantlib/Python

I am aware that I can create a IRS in Quantlib/Python by using the following function: ...
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1answer
41 views

Understanding Front-End Spreads (terminology, lingo, convention)

Would appreciate a clear explanation as to what the OIS/Tsy spread and the TU OIS spread is. I've seen it being talked about in Wall St research reports but can't seem to find good explanations on ...
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1answer
63 views

If 10s20s steepener have equal DV01 weighting on each swap then why does convexity play a role in MtM

Receiver Swap 10yrs Notional: 1,000,000 DV01: +1,300 Tenor: 10yrs Rate: 4% Payer Swap 20yrs Notional: 500,000 DV01: -1,300 Tenor: 20yrs Rate: 5% Looking at this fictitious example, I want to ...
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69 views

Interest rate swap valuation date convention

When we value interest rate derivatives on any date $t$, we can estimate our future payments using some calibrated forward curve $f_s$, where $s$ is the spot date, and discount these back to $t$ using ...
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135 views

Margin requirements for OTC variance swaps

It is not clear for me the mechanism of margin requirements for OTC variance swaps. I don't see in supplementary information to OTC Swaps the rules of margin maintenance or initial margin or ...
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2answers
292 views

Forward swap rate calculation from the market

Following my question Swaption valuation across time using vcub where I wanted to know how to value a swaption across time using bloomberg's vcub, I remark that I have to calculate myself the ...
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1answer
98 views

How would this 10s/20s steepener work

Say I'm interested in a trade that wants to execute a 10s/20s steepener This is done via a receiver leg on the 10s and a payer leg on 20s Look at the following example (the figures are all ...
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2answers
97 views

Valuation of Total return swaps (TRS)

I have seen a TRS being valued which has an index as underlying on the asset side. It also has a coupon rate associated with it. Asset leg is calculated by taking ...
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1answer
73 views

What does 5 year OIS actually mean?

I am aware that OIS is the new reference/risk-free rate for collateralized cashflows. OIS is by definition an overnight rate (annualized, I assume). So once I have constructed my OIS yield curve, what ...
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1answer
148 views

USD Swap day convention (IMM) Feb 19

Quick question about something that I am not clear about February 19 IMM date is 20th of February, if I want to find the fixing day for that date I would be looking at February 18th, in the US Feb ...
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2answers
379 views

Hedging amortising interest rate swap with vanilla swaps

Is it possible to hedge an amortising interest rate swap (linearly decreasing notional) with a series of vanilla interest rate swaps? With the amortising swap originated today at par rate and the ...
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1answer
336 views

Exposure calculation of a re-coupon swap

How to calculate the exposure of a recoupon swap (when the MTM of an i.r. swap is settled and the fixed rate is reset to the prevailing swap rate for the residual maturity). It's used to reduce the ...
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726 views

Calculating Fx Swap from Cross Currency Swap

I am trying to calculate Fx Swap points of a currency pair from the corresponding Cross Currency Swap rate on the same maturity. I.e if I know that my USD/TRY 5Y rate is 16% and my USD/TRY spot rate ...
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258 views

Interpolating the swap curve

Does anyone know how I can calculate the swap rate in between main tenors for specific dates? For example: what is the implied swap rate in 1 year, 60 days time. Is there an easy way to do this in ...
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1answer
3k views

How to compute for basis adjusted forward rate?

To give you a brief background, I'm valuing a fixed-for-float Interest Rate Swap (IRS) using Bloomberg. I put in a notional amount in (USD) and a assigned 6MO USD LIBOR as the reference index for the ...
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Possible interference of Cross-Rate inaccuracy and CIP Deviations

I am currently attempting to calculate historical deviations from covered interest rate parity between 2013 and 2018. I recently read that: "Unlike the interbank spot market, in the interbank ...
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35 views

Is the ACT/ACT.AFB convention meant to supersede the ACT/ACT convention for interest rate swaps

https://www.isda.org/a/pIJEE/The-Actual-Actual-Day-Count-Fraction-1999.pdf The determination of day counts are slightly diferrent between ACT/ACT (ISDA) and ACT/ACT(AFB). Is the latter more common ...
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1answer
851 views

Pricing Uneven FX Swaps

I'm trying to figure out how to price uneven FX swaps. I just started on a FX trading desk and have been told that the all-in rate for a 2-legged FX swap is equal to: 1) Quote for market side of net ...
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5k views

Why using the swap curve as riskfree rate and no longer gov bonds?

I recently had an interview where I was asked what to use as risk-free rate. In all my textbooks it was always the US treasury yield curve. But they said no its now the "swap curve". Why is the swap ...
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Why does the ultra long-end of a yield curve invert?

The shape of the yield curve (at least in the GBP Rates market) is upward sloping from the front end up to the long end (i.e. 30y), but then begins to become downward sloping as we go beyond 30y and ...
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1answer
38 views

How to understand interest rate bid/ask and apply client mark-up in Tom/Next Rollover Swap Point Calculation

When I am reading materials in swap point calculation for FX Tom/Next Rollover, I am confused with the market interest rate bid/ask. Using an example: I traded on ...
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1answer
114 views

Recommended Instruments (and sources) for Constructing Money Market Yield Curves

What instruments are the current industry recommendations for constructing money-market yield curves in some major currencies? The switch after the crisis to multi-curve methods is well documented on ...
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65 views

Replication of a dividend swap

I wanted to know how banks replicate dividend swap, my best guess is to take the spread between a Total Return Swap and a Forward.
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2answers
340 views

Cross-Currency Inflation-Linked Swap

I am trying to find any references to cross-currency inflation-linked swaps. Have anyone encountered them and can describe how they work and how they differ from standard year on year inflation swaps?
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54 views

OIS vs Libor for cross currency

I would like to understand the convention for discount rates fro cross currency swaps. It seems to be market convention (Australia) to discount collateralize positions with OIS and uncollateralized ...
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1answer
52 views

Swap Pricing - Using forward rates vs using par bond after first floating payment

There seems to be two different methods I have come across for valuing a Interest Rate Swap - specifically the floating leg. One method described by Hull: incorporates the cashflow from the first ...
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47 views

Variance swap correlation trade

I found two highly correlated assets that have spread in 3M realized and implied vol at historical minimum. To go long on this spread I thought of using two variance swaps. Would it be cheaper to ...
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87 views

analytical formula for FV of fixed rate of a IRS [closed]

IRS plain vanilla - expiry in 5 years - principal is 1$ - semianual payment How could the analytical formula be derived for the fair value of the fixed rate (initially no value of the swap)?
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Vega for Constant Maturity Swaps

Why does a Constant Maturity Swap have a positive vega? Is it because of the convexity? How does one hedge it?
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2answers
4k views

What is the EUR swap curve on Bloomberg? I.e. what is the EUR equivalent of S23 curve on Bloomberg?

I am trying to understand the currency basis calculation and whether there is a difference in currency basis when quoted vs. OIS and -IBOR rates.