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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
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12 votes
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Why are FRA/futures convexity adjustments necessary?

This has been posted a few times now, so I will invest the time on a full response. FRA / Futures convexity has nothing to do with profits/losses being immediately recognised on the future through ...
Attack68'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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6 votes

US overnight swaps (OIS)

Well, OIS is actually a style of swap, based on overnight rates. It could have a Fed Funds or a SOFR underlying rate, or anything else. Up until recently , it was assumed in common parlance that OIS ...
dm63's user avatar
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6 votes

Can you model the LIBOR rate as a geometric Brownian motion?

It is not reasonable because rates display a stationarity but brownian motion is not stationary. The variance of libor at a future time $t>0$ conditional on the value at time $t=0$ does not scale ...
Ezy's user avatar
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5 votes
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Difference between ED futures and ZCB

In general futures contracts are leverage instruments. They never require the investment of principal. They do however require margin: you need to fund your account at a futures exchange so that they ...
Attack68's user avatar
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4 votes

Difference between OIS Rate and Fed Funds Rate

The fixed leg of the OIS is an unsecured rate that is very close to Risk Free Rate (RFR) because of the combination of several reasons: it is akin to a money market term deposit rate swapped against ...
Lebaroux's user avatar
4 votes
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Difference between US FED interest on reserve and EFFR?

According to https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210602a.htm , July 29, 2021, the previously separate interest rate on excess reserves and the interest rate on required ...
Dimitri Vulis's user avatar
3 votes
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Why is the formula for the 5y5y inflation swap forward on bloomberg 2*USSWIT10 Curncy-USSWIT5 Curncy

The standard method is 2*USSWIT10 - USSWIT5 which as you say, has no compounding. The compounded version that you attempted should be (1+USSWIT10)^2/((1+USSWIT5). If you experiment with actual ...
dm63's user avatar
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2 votes
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How to change the Libor rate to Forward Libor rate in Swap?

General fact: From a mathematical standpoint, we can write the PV of a flow to be received at $T$ as the value of its expectation under the $T$-forward measure (which is also the value of the forward ...
byouness's user avatar
  • 2,220
2 votes

Why do increasing spot rates have to be equal to or larger than the corresponding par rates?

To answer this question, we must fix a bit of the vocabulary, first. I will try to stick as close as possible to your conventions: Spot rate: (also called zero rate) is the annualised rate of return ...
Kermittfrog's user avatar
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2 votes

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

For IRS schedules there are the following different sets of dates: Payment dates: the dates on which cashflows are exchanged. Accrual dates: these dates define how much interest is accrued (given a ...
Attack68's user avatar
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2 votes
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Quantlib HW 1f model calibration not fitting to market normal vol quotes

You will need a time-dependent volatility function rather than a constant volatility, typically a piece-wise constant volatility function is used and can reproduce the swaption vols exactly (presuming ...
BrownianBread's user avatar
2 votes

How would I price out and set up a steepening yield curve strategy in which Im long 5yr UST and short 30yr UST futures

Not sure what you mean by pricing this trade since the price of a future is given by the exchange. You can get bond futures data for free from CME (TU is the symbol for the 2y and WN for the 30y). I’...
oronimbus's user avatar
  • 1,896
2 votes

Real rates expectations

In the traditional framework, nominal yields represent expectations of nominal growth. If actual nominal > expected nominal, then the future share of pie will rise for savers versus consumers. If ...
demully's user avatar
  • 5,071
2 votes

Attribute P&L to PCA vectors (swaps)

Linear PnL is usually correctly estimated by the inner product of risks and market movements:: $$ Pnl = S \cdot \Delta r = S^T \Delta r$$ Where you apply a linear transformation to those risks to ...
Attack68's user avatar
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2 votes
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SOFR Futures and impact on short-end dollar swaps and front-end notes

Yes to all of your questions. USD swaps vs SOFR futures express almost identical risks, except for the 'convexity adjustment' which is small to first order. Secondly, it is almost certain that on a ...
dm63's user avatar
  • 17.2k
2 votes

Why does Excel's XIRR() yield a different result than the FFIEC's Reg. Z APR calculator?

I concur with your XIRR calc of 33.19% for those cashflows. I am unable to access the FFIEC APR tool as the site seems to be down. However, converting 33.19% to Act/360 using the following formula, ...
AlRacoon's user avatar
  • 6,632
2 votes

Why does Excel's XIRR() yield a different result than the FFIEC's Reg. Z APR calculator?

The following explains the difference between the XIRR and US APR calculation, and it demonstrates the calcuation of the 28.94710% US APR. Download the Excel file "xirr vs app J apr.xlsx" ...
joeu2004's user avatar
1 vote

Attribute P&L to PCA vectors (swaps)

Back in the day, I used to do precisely this on a cross-asset basis. The critical point being that the correlations of any of your PCs to any other PC will be zero, else you will have miscalculated ...
demully's user avatar
  • 5,071
1 vote
Accepted

How to interpret negative fixed rate in Vanilla IRS

You have it right. Fixed rate payer pays -0.35% and receives Euribor. This means the fixed rate payer receives 0.35% and receives Euribor. This is not the same as receiving 0.35% and paying Euribor,...
dm63's user avatar
  • 17.2k
1 vote

Australian banks funding

I don't think that article is correct in the explanation. The FX basis means the difference between the rate you would get from trading a spot vs forward fx trade versus just outright borrowing money. ...
JoshK's user avatar
  • 2,633
1 vote

Banks' use of repo to finance operations

First of all, banks play it both ways. Some banks (JPM especially) are cash-rich and will use their cash (pay depositors 0.00 %) to pick up revenue in the repo markets. Other banks will use the cash ...
JoshK's user avatar
  • 2,633
1 vote

Euro short-term rate (€STR) question

It is an annual rate, with a Actual/360 day count so the interest paid on an overnight loan is -0.56%/360.
dm63's user avatar
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1 vote

How are the notionals on proceeds-weighted bond butterflies calculated?

I believe the duration constraint and the proceeds constraint are not self consistent. You cannot satisfy both. The duration constraint alone fixes $N_1/N_2$ and $N_3/N_2$, so you cannot also ...
dm63's user avatar
  • 17.2k
1 vote
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What happened to future price if rates become negative?

Futures actually have a negative basis all the time without having to have negative interest rates. Dividends can have a rate that is higher than the interest rate and that makes the basis negative....
JoshK's user avatar
  • 2,633
1 vote
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Implementation of the Hull and White short rate model

When you call ql.FlatForward it simply means you are constructing a rate curve that will lead to flat forward rates. The constructor of this curve takes the ...
byouness's user avatar
  • 2,220
1 vote
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Can you determine USD swap rate movement probability from OTM swaption premiums?

As for any European vanilla option you can infer the cumulative distribution function under the pricing measure by taking the derivative w.r.t. strike. In the case of European swaptions the natural ...
Antoine Conze's user avatar
1 vote
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Interest rate model with external variables

These models do exist. They are known as "macro-finance" models. From "Macro-Finance Models of Interest Rates and the Economy": During the past decade, much new research has combined elements of ...
Helin's user avatar
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