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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1answer
581 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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3answers
2k 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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324 views

Basic question about swap/swap spreads

When I read up on swap spreads, the definition always goes something like this: The swap spread is the difference between the fixed leg of swap and a Treasury bond with the same maturity. So if the ...
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2answers
123 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 ...
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1answer
531 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 ...
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1answer
5k views

Swap Rate vs Par Rate

If we calculate the par rate for n periods, why does the nth swap rate equal the par rate? A mathematical formulation would be helpful apart from an intuitive answer. Edit: Example:- A 2 year ...
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66 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
78 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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169 views

Breaking out Swap curve + z-spread from a bond

A colleague mentioned the following: She wanted to look at some bonds in Reuters/Bloomberg to see if they if they "correctly break-out the swap curve and z-spread". Would anyone understand ...
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114 views

Swaption decomposition - forward options and option on options

I am following through the book "An Introduction to Financial Derivatives" by Salih Neftci. According to the book, a swap can be decomposed into cash flows from forwards and options. I am ...
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513 views

Tenor bucketing for swap interest rates?

in the place I work I've noticed that for asset class Interest Rate Swaps, tenor bucketing takes place. Example as follow: IRS with maturity 2 month being bucketed into a "3 month tenor bucket" Page ...
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2k views

Pricing of Fx Swap and Fx Forward in excel

How to do pricing of FX Swaps and Fx Forward in excel can anyone show the same which will match the bloomberg.I am calculating by adding or subtracting the fx fwd points in fx spot rate to arrive at ...
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133 views

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

The realised PV of a swap (notional is 1 ) is : $Swap(t)=\sum^n_{i=1} \tau_i \times D(t,Ti) \times (L(Ti, Ti, Ti+ \tau_i) - K)$ How do we get the expression with forward rate : $Swap(t)=\sum^n_{i=1}...
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162 views

Pricing structured products (Mortgage Backed Securities) [closed]

What would someone have to do to be able to price a structured product like Mortgage/Asset Backed Securities?
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2answers
3k 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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2answers
600 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
648 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, ...
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1answer
1k 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: ...
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2answers
3k views

Is the "swap curve" synonymous with the "yield curve"?

Looking at the swap curve construction here: http://www.bankofcanada.ca/wp-content/uploads/2010/01/wp00-17.pdf it seems to be constructed in an identical fashion as the yield curve as described here:...
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458 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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254 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
176 views

Understanding Asset Swap Spread Example

Here is an overview of the asset swap spread I found online: https://www.deriscope.com/docs/AssetSwaps_LehmanBrothers_2000.pdf I can't seem to make sense of the numbers in this example: Specifically, ...
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150 views

The meaning of balance sheet intensive instruments

What does it mean for an instrument to be "balance sheet intensive"? I found people mean it different things. People say bonds and repos are balance sheet intensive. Some say swaps are ...
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420 views

IFRS9 hedge accounting - fx risk hedge with Cross currency swap with notional reset

My understanding is that notional resetable cross currency swaps (MTM CCS) are very common amoung interbank markets, and MTM CCS are often used to hedge fx exposure. However, the notional resettable ...
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1answer
53 views

Hedging guaranteed liabilities for a pension fund

I'm trying to understand what we mean by linear and non-linear guaranteed liabilities for pension fund ? Often this exposures are hedged by Interest rates derivatives swaps and swaptions which I can ...
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140 views

Inequality involving Co-Terminal/Co-Initial American vs Bermudan Swaptions

Let us consider a payment schedule $\mathcal{P}:=\{t_1,\dots,t_n\}$ which has a corresponding fixing schedule $\mathcal{F}:=\{t_0,\dots,t_{n-1}\}$. We have a series of co-terminal and co-initial swaps ...
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2answers
381 views

How to find OIS discounting factors from OIS swap rates. Please explain with example

Suppose I have the following OIS Swap rates: 1 year OIS Swap: 0.36% 2 year OIS Swap: 0.37% 3 year OIS Swap: 0.38% 4 year OIS Swap: 0.40% From these, how do I get the OIS Discounting factors for ...
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66 views

discounting currency swap

I need help with a currency swap problem: Remaining life: 15 months. Exchanging interest at 10% on £20 million in Sterlings for interest 6% on $30 million in Dollars. If swap were negotiated today, ...
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3answers
643 views

Are forward rates for an IRS computed between reset dates or between start dates?

In order to price the floating leg of an IRS I am computing forward rates for future coupons, but I'm not sure whether I have to compute such rates between reset dates or between start dates. My ...
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107 views

Inflation Indexed Caplet/Floorlet

Can someone explain what is it with $\psi_{i}$ (year fraction in $[T_{i-1},T_{i}]$). The formula in Mercurio (2006) as is follows: $N\psi_{i}P_{n}(t,T_{i})\mathbb{E}_{n}^{T_{i}}\left[\left(\omega\...
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96 views

Swaps curve building with Deposit, FRAs & Swaps

I'm new to curve building with Deposit, FRAs & Swaps, I understand the process the main struggle I've is with day conventions and swap delays,cash delays, pay delays ... it's hard to find a book ...
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46 views

In a cleared inflation swap agreement, what determines how much "collateral" a party needs to deposit into the third party escrow account?

Does realized inflation or expected future inflation determine how much money needs to be placed into the escrow account each day?
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433 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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98 views

Concentration risk in Rates

What are some good ways to assess the concentration risk for a rates curve or by currency when volumes traded by instrument are not easily available? For ex, if for some currencies, the PV01 at ...
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58 views

Port a model dependent swaption sensitivity to a new model

I have a short rate model in which I have (among others) the following metric (for leverages) for a swaption : $$L = \frac{\frac{\partial}{\partial r}V_0^{\textrm{Swaption}}}{\frac{\partial}{\partial ...
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2answers
705 views

bootstrapping bloomberg

Does anyone know the zero rate here at -0.23022 is derived? I have tried (1+0.0056*0.503)*(1+-0.00232*0.086)=(1+?^(1/0.589). Solving for ? gives me -0.002344. I have tried simple and compounded ...
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177 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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1answer
3k 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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426 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 ...
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2k 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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390 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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3k 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.
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487 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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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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180 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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82 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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100 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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119 views

IRS: Diff between "pricing curve" and "discounting curve"

I'm reading a book on swaps and author mentions in the typical attributes of swaps: "Discount curve: For present-value calculations (say, to calculate the current market value of the swap), what ...
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57 views

What happens to a Swap CCR if there is a mandatory breaking clause?

I doubt with regards to this. If for instance, we have the same two 5-year swaps one of them with a Mandatory Break clause in year one, what would be the differences in the CCR profile during the ...
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100 views

Cross Currency Swap Bids and Offers?

Could someone please explain why certain Cross currency pairs like EURUSD or GBPUSD show higher bids then offers in Bloomberg? e.g for a 5y GBP/USD Xccy Swap bids could be at -5 bps and the offer at -...

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