# 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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### How do swap dealers make money from trading cancellable swap?

A fixed-rate payer (e.g. a swap dealer) of a cancellable swap pays more interest than he receives because he has the right to terminate the swap after a certain time if rates fall. What are the ...
2answers
908 views

### How to calculate this swap rate

What is the 2x5 swap rate? here 2x5 swap rate refers to the 3-year swap, 2 years forward.
1answer
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### CNY IRS Fixed Vs 3 Month SHIBOR. Can any one please confirm the curve practices ?

AM trying to match CNY Swap Curve with Bloomberg. Yields unto 9 months can be converted to dfs using 1/(1+rt), where t = Actual Number of Days / 360. One year and boot strapping method was used with ...
3answers
3k views

### A question about dates generation

I am actually trying to strip Markit IR curves, following their specs here : http://www.cdsmodel.com/cdsmodel/assets/cds-model/docs/Interest%20Rate%20Curve%20Specification%20-%20All%20Currencies%20(...
1answer
128 views

### What is the value/price of a bond paying floating rate

I am going through J.C.Hull for swaps. Where he says we can value a swap using bonds. Let $B_{fl}$: value of floating rate bond, $L$ notional principal. Why is $B_{fl} = L$ just after a payment ? What ...
0answers
59 views

### Convert Short rate from HW simulation into Swap rates

I am trying to price an exotic option that requires me to simulate 10 yr swap rates. I have calibrated a 1 factor HW model to swaption prices. However, my understanding is that the HW model describes ...
1answer
2k views

### Spot/Next and Tom/Next FX forward swaps

could somebody please tell me what is the main difference between Spot/Next and Tom/Next FX forward swaps? I know that both are used to roll spot FX position settlement to 1 day forward but I really ...
1answer
2k views

### 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 ...
3answers
4k views

### 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 ...
3answers
93 views

### 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. ...
2answers
742 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 ?
1answer
501 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 ...
1answer
2k views

### 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 ...
1answer
417 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 ...
1answer
777 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. ...
3answers
2k views

### 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 ...
0answers
162 views

### 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 ...
1answer
451 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 ...
1answer
5k views

### 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 ...
2answers
578 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 ...
0answers
162 views

### 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 ...
2answers
117 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 ...
1answer
109 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 ...
2answers
543 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-...
0answers
149 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 ...
1answer
4k views

### 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. ...
3answers
2k views

### 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 ...
1answer
58 views

### 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 ...
1answer
216 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 ...
1answer
146 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: ...
1answer
62 views

### 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 ...
1answer
2k views

### 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,...
1answer
717 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 ...
2answers
1k 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 ...
2answers
210 views

### 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 ...
1answer
392 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, ...
1answer
182 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. ...
1answer
331 views

### 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: ...
2answers
1k views

### 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 ...
1answer
221 views

### 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 ...
1answer
953 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 ...
0answers
130 views

### 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 ...
1answer
342 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 ...
2answers
360 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 ...
2answers
669 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 ...
2answers
1k views

### 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-...
3answers
4k views

### 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 ...
1answer
244 views

### 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 ...
2answers
419 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 ...
0answers
144 views

### 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 ...