# Tag Info

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### Derivation of VIX Formula

The piece you are missing is an approximation via the Taylor formula of the logarithm: $$\ln(1+x) \approx x-\frac{x^2}{2} \; .$$ Apply this to the first term in the final formula of the technical ...
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### 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"...
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### Difference between 5Y breakeven inflation and 5Y5Y inflation forward?

I downvoted because I think the FED is very detailed in their documentation. The definition of a forward is a very basic financial question that a bit of google search can answer and not a quant ...
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### How to Bloomberg compute the implied Yield ? What is FX swap basis spread?

1 ) The value 1.062732 is the Forward outright as quoted on FRD. Your pricing source is BGN (Bloomberg Generic New York). That ...
• 9,384
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### Why do FX Swaps have Interest Rate Risk?

An FX Swap can be described as "borrowing in one currency and lending in another". When put this way it is clear that it has something to do with interest rates in the two currencies. You will be very ...
• 9,402
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### Spot/Next and Tom/Next FX forward swaps

Let’s say the settlement period is T+2, and you made a deal on the 8/10/2018. The spot date would be 10/10/2018 (assuming no holidays!), that’s when the physical exchange would happen. Now if you don’...

### Why is CSA currency OIS rate used in discounting instead of local currency OIS?

The problem here is that your market is not arbitrage-free: JPY OIS = 10% per day, flat USD OIS = 0% per day, flat USDJPY spot = 100 USDJPY Forward for tomorrow = 100 A quick sense check ...
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### Downward Sloping Swap Spread Curve

If I look at the market I think this is mainly driven by the very nature of the long end investors of the swap curve. Compared to govi curves the swap curves provides a much better liquidity in longer ...
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### What is a Constant Maturity Swap (CMS) rate?

In a vanilla swap, the IR on the floating leg usually depends on the reset period/swap frequency. If frequency is 6m, 6m LIBOR is used for reset, 3m LIBOR for quarterly resets etc. In a floating CMS ...
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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) ...
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### Discount curve and payment frequency

Better yet, don't use LIBOR for discounting at all. Since LIBOR involves credit spread over the risk free rate, using LIBOR for discounting would adjust the deal's market value to reflect some amount ...
• 61

### 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 (...
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### What does **Long Call EURUSD** mean?

First please keep in mind that EUR (and GBP) are quoted "cable". So if the USD EUR exchange rate is quoted as 1.1, for example, that means that (quotation or countercurrency) USD 1.1 = (base currency)...
• 12.7k
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### 3M curve vs 6M Curve, which one to use for valuation of IR Derivatrives

You use the curve that describes the floating rate index to estimate the floating rate cashflows, a swap against floating 3M uses a 3M curve to forecast the cashflows. And then you use a discounting ...
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As for the book, the best one I have come across is Pricing and Trading Interest Rate Derivatives by Darbyshire, although it's a bit pricey (indeed as most finance books are) (https://www.amazon.com/...
• 6,308
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### Question on Xccy swaps curve observability

In Argentina (and a few other emerging markets), a cross-currency swap is somewhat liquid (much less so than in was before the most recent sovereign default). You can find someone to trade 2 year ...
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### Why do FX Swaps have Interest Rate Risk?

Looking at the swap as a series of forwards, considering then that the arbitrage-free FX forward depends (via the so called interest rate parity) both on the FX spot and the interest rates for the ...
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### 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 ...
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### Valuation of a swap where both parties can cancel (not settle at market) with accrual method instead of present-value?

Any time that a contract is cancellable by either party, it will be cancelled. That's because it is always to one party's advantage to cancel rather than carry on. The exception is that the contract ...
• 17.5k
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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 -...
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### 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 ...
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### A question about dates generation

This is really just to elaborate on other contributor's answers: Generating the cash flow schedule is surprisingly complicated. As a general rule of thumb, the following dates are involved for a swap ...
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It is actually rather simple. Lets start with the fixed rate market. A can borrow at 5% while B can borrow at 7%. Simply said, A has a comparative advantage of 2% in the fixed rate market. In the ...
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### What curve are you shifting when you calculate DV01 for a swap?

Let's step back and look at the reason for making a DV01 calculation first before answering the question; The reason for making a DV01 calculation is to quantify what market movements has impact on ...
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### Commodity Asian Swaps

In an Asian-style swap, instead of using the last price quote of the underlying (such as commodity price), they take an average, such as the average closing price over the last month. This is fairly ...
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### 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 ...
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### 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 ...
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### What does 5 year OIS actually mean?

When people say OIS swap they mean an exchange of some sort of fixed cash flow and in return the receipt of daily OIS based on the "Fed Effective Rate" (FEDL01 Index on Bloomberg). The floating ...
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### 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 ...
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