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8 votes
Accepted

Bootstrapping OIS curve

I see several problems that might explain those differences: The frequency of the fixed leg on a EONIA swap is Annual and not semi The deposit facility rate is not part of the EONIA curve. Use the ...
David Duarte's user avatar
  • 5,835
6 votes
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Half of the bid-ask spread as transaction cost

The idea of assuming that the transaction cost is one half of the bid-offer spread comes from several assumptions: the positions are marked-to-market at mid; you can actually execute at bid or ask (...
Dimitri Vulis's user avatar
5 votes
Accepted

Riccati Equation in spot rate model

As you noted, this is a Riccati type ODE and it can thus be simplified using the standard transformations for this class - see e.g. Wikipedia. We start by defining \begin{equation} C(t, T) = \frac{1}{...
LocalVolatility's user avatar
5 votes
Accepted

For which would you expect the liquidity on instrument X to be the greatest: its spot, future, option or swap?

Completely depends on the asset class. For currencies (including GBP/USD) the spot market is an order of magnitude more liquid than forwards, futures or options. However, some currencies with trading ...
Chris Taylor's user avatar
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4 votes
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FX spot distribution with student-t returns

1. Theory The Student $t$ distribution does not exhibit a moment generating function $$ M_X(t)=\mathbb{E}\left(e^{tX} \right) $$ Hence, there exist no closed form solution for $M_X(t=1)=\mathbb{E}\...
Kermittfrog's user avatar
  • 6,737
4 votes

Structured product sellers and div swaps

To add to the above on a more practical note: In general, SP desks make money on the individual product when the underlying declines. Dividends make the underlying decline, hence they are naturally ...
DMSTA's user avatar
  • 161
4 votes
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Structured product sellers and div swaps

The paper is generally correct, but it is not a general statement, as in a general truth of options hedging in a theoretical context, rather a statement regarding how the structured derivs market is ...
Ivan's user avatar
  • 1,396
4 votes
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Can I use spot rates bootstrapped from a swap curve to price a bond?

The general - and short - answer would be no: Except for some hypothetical cases, unless you have a convincing model for the residual spread-over-swap, you cannot use swaps to value your bond. Quick ...
Kermittfrog's user avatar
  • 6,737
4 votes
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What is the consensus interpretation of index future dealer gamma?

If dealers are short gamma, as you say, the client base is long gamma. The explanation for this will not always be the same, but here’s a few possibilities client base has bought a lot of puts to ...
dm63's user avatar
  • 17.2k
3 votes

Is LIBOR a spot rate?

First question can't be answered without knowing what you are discounting. Second question you are asking whether the rate of a 16 day interbank loan can be obtained from interpolating an overnight ...
dm63's user avatar
  • 17.2k
3 votes

Predicting the Future FX Spot Rates

It is very difficult to outperform the "random walk without drift" benchmark. The forward rate is not a particularly good predictor as it is often biased. Nevertheless some economists claim it is ...
Alex C's user avatar
  • 9,382
2 votes

Predicting the Future FX Spot Rates

You could compare 3 month fx forward points versus realised 3 month fx differentials to see if interest rate differentials are a good predictor. I looked at a 1 year horizon and concluded that you ...
James65's user avatar
  • 61
2 votes
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Spot-Forward Relationship - Proof

Let's go for a detailed and rigorous proof. Let us define our local currency $Y$ as the numéraire, i.e. the asset in terms of whose price the relative prices of all other tradeables are expressed. $X$...
Soumirai's user avatar
  • 624
2 votes
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Implied AUD Interest Rate from USDAUD FX Swap and USD Interest Rate

The reason for the bid and ask twisting is that you can think of a long AUD forward as three transactions: Borrow USD Sell USD, buy AUD spot Lend AUD As a result, there are three sources of bid/...
Charles Fox's user avatar
2 votes

Implication of Humped Spot Curve on future spot curve(s)

The forwards and the spot rates will be decreasing, that is correct.
Edward Watson's user avatar
2 votes
Accepted

Total return of a bond using spot rates

Hopefully clear from the table below. On the left, the NPV of the bond today is 111.2199, exactly as you say. On the right is the same for 12 months time, after the payment of the first coupon.
demully's user avatar
  • 5,071
2 votes
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Determine forward rates for EUR/USD

The ESTR rate should be -0.585 and not 0.585. Converting to monthly form by dividing by 12 and using the CIP formula gives: $$F=\frac{1+0.0029/12}{1-0.00585/12}\times 1.0810 =1.0818$$ or 8 forward ...
fes's user avatar
  • 1,727
2 votes

Relationship between simple Libor spot and forward rates

USD Libor rates are quoted on a Act/360 basis. You can determine USD Libor forward rates by application of the following formula. $$ (1 + \text{SpotRate}(t) \times (\text{Act}(0,t)/360)) \times (1 + \...
AlRacoon's user avatar
  • 6,632
2 votes

Parallel shift in spot yield curve moves the IRR of a bond portfolio in the same direction: Analytical Proof

First, for a parallel shift, $x$, in the spot curve, show that for any bond, $i$, $$\frac{\partial P_i}{\partial x} < 0, \implies \frac{\partial P}{\partial x} = \sum_i \frac{\partial P_i}{\partial ...
Attack68's user avatar
  • 10.7k
1 vote

Are the buy/sell demand, the underlying spot price and the time value, the only factors in futures contract price?

If you include the actual specification of the price semantics (ie, the contract specification), then yes. That's it.
ThatDataGuy's user avatar
1 vote

How to value a long term interest rate swap if the floating leg is USD-LIBOR

A vanilla IRS on USD libor is fixed float with the float variable being 3m Libor. As @KevinT wrote, there is no spread in market quotes. The fixed leg coupon is quoted in a way that the IRS is "...
AKdemy's user avatar
  • 9,014
1 vote
Accepted

Why do par-yield shifts grow faster across the curve than spot-rate shifts when looking at key-rates?

Intuitively, this is the "coupon effect" at work – when the yield curve is upward sloping, lower coupon bonds have higher yield and their yields move up more when the overall curve shifts up (all else ...
Helin's user avatar
  • 11.8k
1 vote

Reliable weekend forex source that can act as credible data for Monday APAC morning forex trade

As others have mentioned, the conventional answer is 'no'. However, here is one interesting angle of the new cryptocurrency trading market to me - it operates 24/7/365 (yes even Christmas day!). Now I'...
StackG's user avatar
  • 3,036
1 vote

Reliable weekend forex source that can act as credible data for Monday APAC morning forex trade

Well it depends on what pairs you want data for. But in general, no. Even if you can see intraday data in those 'dead' times, the quotes can be very stale (hours old).
ThatDataGuy's user avatar
1 vote

Spot rate investment horizon

The confusion arises because “spot” is variousLy used in FX, equities and commodities to refer to the immediate/very-short-term price (before any forward adjustments for interest rates, dividends, ...
demully's user avatar
  • 5,071
1 vote
Accepted

Pricing IRS: bootstrapping zero rate (spot rate) from the swap curve

It seems you are using the same curve for forward and discounting. The EUR Vanilla Swaps vs 6M actually have yearly payments, so to obtain the discount factors, and after having the DF for year 1, ...
David Duarte's user avatar
  • 5,835
1 vote

Spot Rates on Treasuries

Yes you can access spot rates on the Treasury website here: https://www.treasury.gov/resource-center/economic-policy/corp-bond-yield/Pages/TNC-YC.aspx https://www.treasury.gov/resource-center/data-...
Joel Alcedo's user avatar
1 vote

Calculating theoretical spot rates of treasury bonds beginning with treasury bills

The question really is what is the discount factor for a payment in one year assuming semiannual compounding? Because then your present value is simply 1.75 times this discount factor. If you have $k$...
Kevin's user avatar
  • 16k
1 vote

Units of measurement for Minimum Variance Hedge Ratio

Since SD in this case is usually the 1-day difference of log prices (i.e. 1-day returns) and corr is a dimensionless number, you shouldn't have to keep the units the same. After all that's how you're ...
ogukku's user avatar
  • 29
1 vote

Calculating spot rates from forward rates

If you want to calculate the forward rate given semi-annual compounding then the answer should be: \begin{equation} F(0,t_a,t_b)=\Bigg(\sqrt[2*(t_b-t_a)]{\frac{(1 + \frac{r_b}{2})^{2*t_b}}{(1 + \...
wanna_be_quant's user avatar

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