# Tag Info

### $\mathbb{P}$ vs $\mathbb{Q}$ Probabilities - Transitioning Between Measures

$\mathbb{P}$ is the true probability measure. Measure $\mathbb{Q}$ is a measure of convenience that allows risk neutral pricing. Stochastic discount factor $M$ takes you between the two. If you care ...
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### Why do we discount in ois and not treasuries

There are two parts to this question: 1) Is OIS a good risk-free proxy? and 2) Why is OIS used to discount cash flows of derivatives. First, overnight indexed swaps, in the US, are indexed to the Fed ...
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### Bond discounting conventions

You are basically just arguing semantics from two models, neither of which are necessarily precisely accurate. If you observe the assumptions regarding yield to maturity, you have; 1) Coupons can be ...
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### Why use the risk-free rate for discounting in a risk neutral world?

The first statement is kind of clear. If all investors are risk-neutral, they simply do not care about risk and do not pay more or less regardless how risky an asset is. As a consequence, the return ...
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### Proof that we can price any derivative as the discounted value of its expected return under the risk neutral measure

This holds due to a change of measure. There is the real-world $\mathbb{P}$ and the risk-neutral world $\mathbb{Q}$. (I am going to assume constant interest rate $r$) The first fundamental theorem of ...
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### What is the EUR swap curve on Bloomberg? I.e. what is the EUR equivalent of S23 curve on Bloomberg?

The curve Bloomberg EUR swaps curve (YCSW0045 Index) is indeed the euro equivalent of the Bloomberg USD swaps curve (YCSW0023 Index). By equivalent I mean that each curves are constructed in the same ...
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### Dual discounted forward curve

Which currency are you looking at ? Say that your 1y swap would have yearly fixed payments vs 3M floating payments. Your 1.5y swap would probably have: a fixed payment 6m after effective date and ...
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### When to use what discount rate?

Ideally, you would discount a certain cash flow by its appropriate curve. For example: 1) you would discount the cash flow of your fixed income investments by the yield curve of the Treasury market;...

### For IFRS9, losses should be discounted with the EIR, why is that sensible?

1. $V_0$ is what the bank would write for it's book value This is only the case for items held on the balance sheet at Fair Value. Most banks will hold many assets/loans at amortized cost (principal ...
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### ESTER replacement for EONIA/EURIBOR

I believe that Eonia can still be used for discounting derivatives after 2020. Article: https://www.risk.net/derivatives/5848051/esma-eonia-can-be-used-in-csas-after-2020 If it becomes illiquid, ...
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### Recommended Instruments (and sources) for Constructing Money Market Yield Curves

A plethora of instruments, a menagerie of curves Different instruments are traded in different ways, and relate to a collection of curves. Floating rate instruments depend on some index in order to ...
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### What is the difference between a cleared interest rate swap and a OTC interest rate swap with collateral in theory

For both cleared and OTC swaps you need to post margin. If you are delivering cash then you will receive OIS in generally in either case. As OTC trades are bespoke you might have a different ...
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Recall that the price of your contract is \begin{align*} V_t = e^{-r(T-t)} \mathbb{E}^\mathbb{Q} [H1_{\{S_T>K\}}|\mathcal{F}_t] \end{align*} because your option always pays $H$ if $S_T>K$. Next, ...