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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244 views
CVA for an inflation linked swap
I am trying to value an inflation linked swap and wish to calculate the associated CVA and DVA.
I think the best way to approach this would be via a simulation.
Suppose I wish to calculate CVA over ...
3
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2answers
1k views
Why QuantLib computes the fixed-leg swap rate by this formula?
I'm trying to understand how QuantLib creates (bootstraps) a yield curve from a vanilla swap at the source level. I have the following test code:
...
3
votes
1answer
940 views
Derive OIS rate from IRS rate and Fed Funds/Libor basis spread
For example I have 7Y interest rate swap rate and 7Y Fed funds/Libor basis spread. What is the step-by-step procedure to derive OIS rate from these two?
2
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1answer
4k views
Libor OIS basis swap equation
I'm a little embarrassed about this because I have a PhD in math, but I'm having a little trouble working out how to bootstrap an OIS curve from libor rates and basis swap rates. If I had an equation ...
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3answers
5k 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 ...
10
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2answers
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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vote
1answer
2k views
What is a Basis Swap Curve?
I know what a Swap Curve is. But I don't understand what a Basis Swap Curve is and how it is constructed?
Need some guidance on this.
1
vote
1answer
207 views
Variance Swap volatility
In an article, it is mentioned that a parameter is "the variance swap volatility at time t".
I know what a variance swap is but I don't know what they could mean by "variance swap volatility".
...
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1answer
5k views
Stub rate and first fixing in IRS
I have 2 questions that probably are related.
Suppose there is an IRS that pays a 2% fixed rate every 6 months and receives the Libor 3 months (but paid every 6 months).
The swap starts today (March ...
3
votes
3answers
891 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 ...
1
vote
0answers
58 views
Using Forward Equity Returns to Value Stream of Equity Return Cash Flows
Can I value the equity leg of an equity swap using the projected forward equity returns?
In other words, for a sequence of times $t_{0}<t_{1}<\ldots<t_{n}$, where $t_{0}$ begins a brand new ...
3
votes
2answers
3k views
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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2answers
417 views
OIS & LIBOR swap
Why do people use OIS and LIBOR swap spread to compare/value bonds/derivatives?
Why not just use US treasury?
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votes
1answer
524 views
Building curves using onshore or offshore JPY overnight rates?
I am trying to build Japanese Yen interest rate curves. When defining the curve instruments for the 'OIS' (discount) curve (aka TONAR), I am uncertain as to which rate to use for the overnight deposit ...
0
votes
1answer
625 views
How can we write swap as a chain of FRA's
For the rest of my question I use the notation from Brigo. The discounted payoff of a receiver interest rate swap (RFS) at $t<T_{\alpha}$, where $T_{\alpha}$ is the first resetting date, is given ...
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vote
1answer
1k views
negative discount and zero rate on swap bootstraping
Hi I am writing a program to Bootstrap a EURO zero swap-curve for tenor 3M and 6M with given bid and ask. When I run the program , I get a negative zero rate and discount factor from 5Y till 30Y for ...
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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
...
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votes
2answers
2k views
Curve Euribor - Euribor 3M
I'm setting up some Euribor 6M and Euribor 3M curves.
So far i have all the data and quotes i need, but i'm having trouble defining the firsts points of the curve. I'm currently using 6M Euribor and ...
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vote
2answers
157 views
How to calculate cash flow for XC swap
Given 3MLibor vs 12MLibor USD basis swap the 3M Libor is exchanged at 12MLibor+1%.
How to calculate the cash flow
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votes
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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votes
2answers
348 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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2answers
51k views
What is the Swap Curve?
What is the so-called Swap Curve, and how does it relate to the Zero Curve (or spot yield curve)?
Does it only refer to a curve of swap rates versus maturities found in the market? Or is it a swap ...
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votes
1answer
2k views
Incoherence in Bloomberg Data in Swap Curve Builder (ICSV)
When working on calibration for LMM model, we need to have Initial Libor quotes and Swaptions Black vol quotes on the market data. We have data provided by Bloomberg. However, before performing the ...
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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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vote
1answer
3k views
Hedging a Long Equity Swap by Shorting the Stock
Suppose that I enter an Equity Swap, such that I pay a floating rate and I receive the equity return. The payment is every one year for both the rate and the return, and the swap expires in one year. ...
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3answers
2k views
Deriving Interest Rates
I am trying to teach myself about interest rate swaps, how they are priced, etc... Easy enough - just comparing cash flows of fixed and floating rate bonds.
However, what I'm struggling with is how ...
3
votes
1answer
339 views
Girsanov theorem in CMS convexity derivation
I am going through the derivation of CMS convexity from the notes of
Lesniewski
There is a transformation from $T_p$ forward measure to annuity measure $Q$ as
$$
P(0,T_p)E^{Q_{T_p}}\left[S(T_0,T)\...
3
votes
2answers
3k views
IMM Swaps vs. Forward Swaps
Could we think of IMM dated swaps as forward swaps (since they trade only on specified dates and they might not be the current date)? For example, today is June 2nd, the next IMM swap is June 14 (not ...
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votes
2answers
1k views
Why is USD LIBOR used for USD denominated securities?
I am just starting on Interest Rate Swaps & curve construction. While reading few materials on Interest Rate Swap, it's indicated for e.g. "Floating Coupon Index: 6 month USD LIBOR".
LIBOR is ...
4
votes
2answers
2k views
How do insurance companies use interest-rate swaps?
I have heard that insurance companies make use of swaps and am just trying to get some clarity on that:
An insurance company (assume life insurance) has a fixed obligation to pay in the distant ...
4
votes
2answers
3k views
Why is “full” Yield Curve (term structure of interest rates) 3 component based?
I am trying to understand bond-valuation and construction of yield curve. I don't have any exposure to bootstrapping or what-so-ever as of now. So it's appreciated to have an example but not too ...
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votes
1answer
371 views
Is this an inconsistency between Swap and LIBOR?
I'm a little confused by what I see as an inconsistency between quoted £ swap rates and £ LIBOR.
From the FT on 25/4/14:
1-year Swap (semi-annual): Bid - $0.63\%$; Ask - $0.66\%$
LIBOR: 6-month - $R_{...
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votes
2answers
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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vote
3answers
81 views
Who is the issuer and the counter part of this instrument?
I have the following SWAP contract : T1UH4 which is a 2-Year Deliverable Interest Rate Swap.
Product info :
http://www.cmegroup.com/trading/interest-rates/deliverable-swaps/2-year-deliverable-...
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votes
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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vote
1answer
64 views
Why is the discount function non increasing if pure cash holdings are feasible?
I am struggeling with the question, for example lets take a swap with rate of 3.2 for one year and 3.6 for 2 years and Discount Factor 0.96899 for the first year and 0.93158 for the second year.
...
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1answer
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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votes
1answer
539 views
Modified Duration of Overnight Index Swaps
Is the modified duration of an overnight index swap zero or close to zero?
3
votes
1answer
647 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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votes
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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votes
2answers
594 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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votes
0answers
165 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 ...
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votes
5answers
20k 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 ...
24
votes
6answers
48k views
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 ...
2
votes
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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votes
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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vote
1answer
75 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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votes
0answers
1k 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-...
2
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0answers
628 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 ...
8
votes
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. ...
