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25 votes

Difference between OIS Rate and Fed Funds Rate

Since the financial crisis of 2008-9, banks have become less willing to lend to each other for periods of more than one day. They prefer to lend `overnight', and must do this at the overnight (O/N) ...
Dom's user avatar
  • 2,167
18 votes
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interest rate swap: PV01 vs DV01

In traditional terminology PV01 is 'present value of a basis point' and DV01 is 'dollar value of a basis point' which might technically only different in different currencies. I have also seen it ...
Attack68's user avatar
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13 votes
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Use QuantLib Python to calculate Swap DV01

No, I'm afraid you're comparing apples with oranges. Your calculation of the DV01 of the swap is correct (with a caveat, see below), but the figure returned from ...
Luigi Ballabio's user avatar
12 votes
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What is the difference between OIS Swap vs Basis Swap?

A Basis swap is a broad category of swaps where you exchange one floating rate against another floating rate. Without knowing the specific rates involved it is difficult to say more. An OIS Swap is ...
Alex C's user avatar
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12 votes

Swap curve construction

I think your question can be split into two parts: (i) how to value a swap mathematically and (ii) how swaps actually work as a traded product. Part (i): As noob2 pointed out, "theoretically"...
Jan Stuller's user avatar
  • 6,178
10 votes

Carry calculation on an interest rate swap

I will attempt to summarise the content included in this book, which has a specific chapter dealing with carry and roll-down. There, two concepts are made completely separate. Costs-of-carry are ...
Attack68's user avatar
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10 votes
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SOFR Discount Curve Construction in Nov 2021

Fixed vs SOFR swaps for longer maturities are very liquid, since the interbank market trades these directly now, and these are the best instruments to construct the long end of the curve (2yr to 50yr)....
dm63's user avatar
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9 votes

Carry calculation on an interest rate swap

It turns out that the two things are the same, appropriately scaled. Proof: we can construct a 5 year swap using 3 month libor combined with a 3mo-4.75yr forward swap, weighted by the dv01s of each ...
dm63's user avatar
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8 votes

Difference between OIS Rate and Fed Funds Rate

Secured and unsecured refers to lending. However OIS is a swap based on FF, not a loan. It is a different animal. So OIS is a derivative, or a bet, based on the average of future (unsecured) FF rates ...
nbbo2's user avatar
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8 votes
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Why are Interest Rate Swaps not valued using Monte Carlo Simulations?

Forward rates are determined from current spot rates bootstrapped from traded instruments. The reason is that if the forwards were different from the ones inferred from the spot rates, there would be ...
David Duarte's user avatar
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7 votes

What is the correct convexity adjustment for an Interest Rate Swap with unnatural reset lag?

Consider a date sequence \begin{align*} 0 \leq t_0 \leq T_s < T_p < T_e, \end{align*} where $t_0$ is the valuation date, $T_s$ is the Libor start date, $T_p$ is the payment date, and $T_e$ is ...
Gordon's user avatar
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6 votes
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Swaption Trading

At most banks, swaption traders have models that allow non atm volatilities to be controlled by two parameters. Specifically , a parameter to control the smile (richness of out of the money options) ...
dm63's user avatar
  • 17.2k
6 votes

analytical formula for FV of fixed rate of a IRS

The key inputs to this calculation are two yield curves obtained from market data: $\{v_i\}$ the discounting factors (value today of \$1 received at time i) and $\{r_i\}$ the forecasting curve (...
Attack68's user avatar
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6 votes
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Derivation of Swap rate formula

If $L$ and $Z$ curves are identical, you are in a single curve frame work. A swap can be seen as a long position in a fixed rate bond and a short position in a floating rate bond. (I'll use yearly ...
David Duarte's user avatar
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6 votes
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What is Dual Curve Bootstrapping? And how to do it, with an example?

A multi-curve means that you observe the discounting instruments (such as fed funds) and projection (libor, swap curve) and solve for all of them simultaneously; as opposed to bootstrapping separately ...
Dimitri Vulis's user avatar
6 votes

Can we think of Overnight Index Swaps as short-term IRS?

An Interest Rate Swap (IRS) normally refers a swap between a fixed rate and a floating rate. Floating rate being a single fixing for each accrual period and payment. An overnight indexed interest-rate ...
David Duarte's user avatar
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6 votes
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Transition to SOFR Swaps and single curve pricing

I think the question was about dual curve stripping. As much as I know, the market is using SOFR discounting for all sorts of quotations now. For example, swaption vol is quoted with SOFR discounting, ...
AKdemy's user avatar
  • 9,014
6 votes

Interpolating Libor 9M rate?

It depends on what you want to do with the interpolated 9M rate. For example, I encountered this practical problem once. Desk loaned some money to an agricultural firm that, for liquidity reasons, ...
Dimitri Vulis's user avatar
6 votes
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USD swaps trading post LIBOR: the current state of the world (January 2022)

The Commodity Futures Trading Commission’s Market Risk Advisory Committee (CFT MRAC) went ahead with a 4-phase program in 2021 called "SOFR First": the four phases relate to linear IRS, ...
Jan Stuller's user avatar
  • 6,178
6 votes

Market convention for building the front-end of the SOFR discounting curve

The front end of the SOFR curve has a lot of structure in it. I cant talk to "market convention" as I doubt something like that exists yet but I use Fixed for floating SOFR swaps (1w, 2w, ...
river_rat's user avatar
  • 1,080
6 votes

BLOOMBERG Strike vs Straddle Volatility

Generally, best to ask the help desk (F1F1) for simple questions like this. See help VCUB {LPHP VCUB:0:1 2824936 <GO>}: Cube Options: Allow you to display or ...
AKdemy's user avatar
  • 9,014
6 votes
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Use of interest rate swaps in liability-driven investing

Based on a Bloomberg article by Matt Levine, this is how it works: Pension funds have long-term liabilities: say a liability of £100 in 30 years from now. This liability will have a net present value, ...
Jan Stuller's user avatar
  • 6,178
5 votes

How to build a cross currency swap pricer?

I recenlty worked on a similar problem and solved it with the help of Quantlib library. Assuming you are working with EUR and USD: get cross currency (xccy) swap data EUR / USD. You want to know how ...
Bozothegrey's user avatar
5 votes
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How were OIS discount curves built before long-term OIS were liquid?

The ois curves were (and still are) primarily build from adding together (a) interest rate swap rates and (b) Fed Funds/Libor basis swaps. For example, if 10yr swaps are 2.0%, and 10yr fF/libor is -...
dm63's user avatar
  • 17.2k
5 votes

formula for physical DV01 of interest rate swap

There are two items that must be clarified with respect to your question: Are you assuming an interest rate swap (IRS) at mid-market, i.e. at-the-money (ATM) or an off-market IRS with some unknown ...
Attack68's user avatar
  • 10.7k
5 votes

Mid-curve swaption

You can only infer forward vol by pairing a mid-curve option with a spot option. It's easier to go through an example (I'll use 5y x 5y vol since I have the sketch below handy...) One decomposition of ...
Helin's user avatar
  • 11.8k
5 votes

Black and Normal Model for Caplet using Python

are you using the same volatility 20% for both black76 and Bachelier? The black76 is a lognormal model, where volatilities are quoted as relative price changes. The bachelier/normal model quotes ...
Kiann's user avatar
  • 622
5 votes

Why does the ultra long-end of a yield curve invert?

I would not say that this is universally acknowledged but here is my view: Instead of considering par rates, i.e. 10Y and 20Y, consider forward rates, such as 10y and 10y10y. The useful difference ...
Attack68's user avatar
  • 10.7k
5 votes

Why does the ultra long-end of a yield curve invert?

Suppose 40yr bond and 30yr bond have the same yield. It is a mathematical fact as @attack68 has pointed out, that the convexity of the 40yr is greater than the convexity of the 30yr bond. So ...
dm63's user avatar
  • 17.2k
5 votes

Difference between FRA and a zero coupon swap

A forward rate agreement is an agreement to exchange a fixed for a floating rate over one period, with the payment being made at the start of the period. A zero coupon swap (with both legs paid at ...
Chris Taylor's user avatar
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