dm63
  • Member for 6 years, 1 month
  • Last seen this week
  • NY, United States
What is the correct convexity adjustment for an Interest Rate Swap with unnatural reset lag?
1 votes

What you need is the convexity adjustment for 3 month libor when the payment is made 1 month after the reset date (ie 2 months before the natural date). As an approximation, this will be ...

View answer
Calculating FRA rates
1 votes

The 1x4 FRA rate is where you can lock in 3 mo libor , 1 mo from now. To construct this rate , you must build a 3 mo libor curve. The first point in this curve is 0x3 libor , which is spot 3 mo ...

View answer
Discussion about negative interest rate
1 votes

The capm doesn't care whether the risk free rate is positive or negative. In fact I'm not aware of any financial theory that is rendered invalid by negative rates. The only thing that's special ...

View answer
Where can I find CMS swap trading prices?
1 votes

The question is about the prices of CMS swaps, which are swaps where one side pays CMS and the other side pays Libor + X, where X is the price we are looking for. The payment frequency is usually ...

View answer
Determining discount factors for non-standard maturities
Accepted answer
1 votes

No it's just interpolation. In practice there isn't much disagreement among participants for something like one month 20yr forward rate.

View answer
Calculating the interest rate from a EuroDollar Futues contract
1 votes

1) convert the futures prices into forward rates by using forward rate= 100- futures price. You now have a chain of forward rates, starting with the rate from Sep 16 to Dec 16. 2) you need a rate ...

View answer
Trying to understand T-Bond futures settlement. What am I missing?
1 votes

During the delivery month, the "net basis" defined as $$ CTD price - (conversion factor * futures price) $$ trades at around zero, otherwise there is an arbitrage. Therefore daily changes in the CTD ...

View answer
yield/price of treasury bonds
1 votes

The correct date to use is the Settlement Date, which is one business day after the Trade Date, or in the case of a newly auctioned security, the Issue Date. The Issue Date is typically between T+2 ...

View answer
Do yield curves only show market expectations, or is there more to them?
1 votes

Yes, yield curves are a pictorial representation of the current secondary market yields of government securities (gilts, in the UK). These market yields are determined largely by expectations about ...

View answer
What is the "inflation delta" of an option?
Accepted answer
1 votes

Typically one only thinks about inflation delta in the context of an inflation derivatives portfolio. Then it is the sensitivity to a 1bp change in the zero coupon inflation rate for each maturity. ...

View answer
What is the effect of mean-reversion on an upper barrier knock-out call option?
1 votes

When you are solving for the local vol in the non mean reverting model, you will find that it also depends on strike. Thus, you can only match vanilla options prices between the two models for a ...

View answer
American Call: when it's European?
1 votes

For options on futures, the American call is worth more than the European when rates >0. Imagine an option that is deep in the money. When you exercise, you get delivered a futures position, which ...

View answer
Cross Currency Swap
1 votes

They need to do 3 swaps (1) Singapore IRS: Receive fixed SGD vs Singapore floating rate for 10yrs on SGD 100mm (2) Currency Basis swap: Receive Singapore floating versus paying MYR floating for ...

View answer
Overpricing Bermudan swaption using Shifted LMM
1 votes

When you say 'overprice' I assume you mean model price > market price. In my experience this is true for all reasonable models. It's due to excessive supply of the Bermudan structure in the market.

View answer
short selling with collateral accounting
1 votes

Surely you have to keep $150 in your account against the short sale, all of which you lose on the close out.

View answer
Swap prices (preferably based on 3 month LIBOR)?
1 votes

If you can get access to a professional bloomberg, the code for a 1yr-3yr forward swap in USd versus 3 month libor is USFS013 .Index Go. I dont know any other way.

View answer
Investment Grade Bond vs Junk Bond, whose duration is larger?
1 votes

I agree with the assertion in the OP. If two bonds are identical then the interest rate sensitivity of the one with higher credit risk is lower. That's because the expected cash flows are smaller due ...

View answer
long fra and a short ed future with same fixing dates, is convexivity negative or positive?
Accepted answer
1 votes

No you are long convexity. The futures contract has no convexity (since its value is linear as the underlying rate varies, specifically it moves by $25 per bp per contract). Meanwhile, the FRA has ...

View answer
How to compute the foreign exchange volatility within a portfolio
1 votes

How about letting the FX rates remain fixed, and recalculate the portfolio volatility. That seems very obvious - am i missing something?

View answer
What does it mean to 'receive outright'?
Accepted answer
1 votes

Receiving outright simply means receiving the fixed rate versus LIBOR on the 6 month forward starting 2 year swap. The term 'outright' is unnecessary here - it is probably being used to compare with ...

View answer
Relations between Call and Put
1 votes

You haven't written down your equations correctly. Ignoring discounting, the equations should be: C(70)-P(70)= -4 (not 66), from put-call parity. Also, C(70) + P(70)= 27; from these two we get C(70)...

View answer
How do you model yield curves for interest rates that have hardly moved?
1 votes

Well you have to be more flexible in your thinking. If you believe that a spike in libor might occur, you have to manipulate the model to produce that scenario. How about just moving the yield ...

View answer
Does a 1Y swap depend on zero curve beyond the 1Y point?
1 votes

This all depends how you build the swap curve. If you are using just annual zero rates to build the curve, the answer may be that a one year par rate (paid quarterly or semi annually) is not the same ...

View answer
Swap rate calculation if reference rate differs from risk free rates
1 votes

You can't calculate the term swap rate from that information. The problem is that the swap spread (ie difference between swap rate and government bond yield) has a term structure determined by supply ...

View answer
What are the canonical global-macro investing books?
1 votes

Expected Returns by Antti ilmanen is a good one. It examines the long term profitability of various strategies.

View answer
Show that being Long a caplet & short floorlet (both with strike price K) is equivalent to a FRA where you pay the fixed rate K
1 votes

yes it is put-call parity: long the caplet pays max(0; libor - K) short the floorlet pays -max(0; K-libor) add them up you always receive libor and pay K

View answer
Is Eurodollar borrowing close substitute for Fed funds borrowing?
1 votes

I think you are right that ultimately all dollar movements are reflected in reserve accounts at the Federal Reserve. May I make a couple of additional points: Eurodollar borrowing is really not a ...

View answer
zero coupon problem calculus
1 votes

The first equation looks correct if B(t,T(i)) is a forward price of an instrument paying no dividends. The second equation looks correct if B(t,T(i)) is a random variable being projected by a ...

View answer
When is it rational to exercise a bond option early?
1 votes

I have a different take on this. Listed options such as options on the 10yr Treasury future, are NOT subject to daily variation margin. That is different to the underlying futures contract, which IS ...

View answer
Analysis of exercising a call option early
1 votes

I don't understand. You are selling the call option you currently own, so you are left with nothing. At no point are you naked short the call option.

View answer