dm63
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• NY, United States

The first thing that occurs to me is that Party B controls the exercise of both Option 2 and Option 1, so it is equivalent to Party B owning 2* the notional of Option 2. Have I misunderstood ...

The traditional tool of central banks is the direct control of interest rates. The interest rate being controlled is usually the short dated interbank rate ( federal funds rate in the US). If, in ...

from a practitioner perspective, i can say there's no such thing as a 0 year swap (obviously). The shortest tenor that you could trade would be a contract on one month LIBOR or more likely 3 month ...

Let’s say the fair coupon on the 2010 coupon paying bond is C. Then this bond is worth 100. Its cash flows in 2007,2008,2009,2010 are respectively C,C,C, (100+C) and we can use the discount factors ...

Those are both reasonable ideas. The pros of the Treasury futures : a) very liquid b) works well assuming you are pretty certain you will pay margin for a 2yr timeframe. The pros of the Fed funds ...

I think it is a coupon bond with semiannual coupons of $CMTRate$, thus a payment of $FaceValue*(1+CMTRate/2)$ at maturity and no other payments due. The $PV$ of this bond is $FaceValue*... View answer Accepted answer 0 votes The call probability is just the probability that the swap rate for the remaining life of the swap is below the strike rate. This is easily obtainable in a normal vol model, it is $$N((Strike-Forward ... View answer 0 votes Yes. Ignoring discounting, you can say the following: 25k 3yr spot = 8.3k (0y to 1y)+ 8.3k (1yto2y) +8.3k (2y to 3y) 50k 2yr spot = 25k (0y to 1y )+ 25k (1y to 2y) 100k 1yr spot = 100k (0yto 1y) ... View answer 0 votes The argument given in the OP doesn’t convince me. Yes, the dollar gamma of ATM options is the largest. But so is the Vega. Therefore the amount of implied volatility increase necessary to ... View answer 0 votes Most people would say: carry = the 1day p/l resulting from overnight rate being different from coupon = (3.2- 3.0)* 1day accrual. Roll down = p/l on remaining swap assuming spot rates remain the ... View answer 0 votes For a simple floater, the discount margin over the reference index equals the coupon margin plus the price discount to par (if any) spread over the life of the note. Thus, it is like yield to ... View answer 0 votes Isn't it as simple as: 1) wait one period 2) if the stock is at 8, buy it. If the stock is at 2 , do nothing. This is an arbitrage strategy, since there is a positive probability of a risk free ... View answer 0 votes It’s an ok explanation until the last 2 paragraphs. You should say :” in order to offset this advantage from SHORTING futures versus the FRA....”. And then the equation is$$FRA rate = Futures\space ... View answer 0 votes It is 2 above. The logic is that the payment at the end of any given period is given by rate for that period * day count for that period (using the dates of that period). Changing the date of the ... View answer 0 votes I'm not sure what you are trying to calculate there. Those amounts you are calculating seem to be the dollar amounts, but you are saying they are EUR. I think the point is that if the client wants ... View answer 0 votes In the US, the clearing houses have announced a new swap contract which is a fixed rate versus SOFR, which is a repo based rate that will be observed and compounded daily, paid probably annually or ... View answer 0 votes I think physical means that BRL currency amounts will be delivered on each fixed and Floating rate payment , whereas cash means that each payment is translated into USD at the then current BRL/Usd ... View answer Accepted answer 0 votes It's because$Invoice Price$in your equation is the Dirty Invoice Price, meaning $$Invoice Price= Futures Price*Conversion Factor + Accrued Interest$$. The Accrued Interest grows as the delivery ... View answer 0 votes See Blyth "An Introduction to Quantitative Finance" which has a whole chapter on the elementary properties of Bermudian swaptions and answers pretty much all of your questions. View answer 0 votes As you can see the swap rate is a weighted average of the forward Libors. Since Libor>OIS, we typically have df(OIS)>df, so the OIS discounted swap rate is more heavily weighted towards the back end ... View answer 0 votes I don't agree with your expression for AbsReturn. It contains two terms which have been divided by (1+y0). Why have these been discounted? The AbsReturn is just value(t=1) - value(t=0) with no ... View answer 0 votes I have a different take on this: in the Black Scholes framework, the expected return on all tradeable assets is the risk free rate. It doesn't matter what the stock price is. That's because the ... View answer 0 votes You can take out a loan for the whole time from now until the end of the forward period, except that from now until 2020 the loan is unfunded, so you just pay an annual commitment fee. Banks should ... View answer Accepted answer 0 votes That's not quite right. Lone star essentially pays 1.7bn for a call option on the CDO, struck at 5bn. If the cdos are worth less than 5bn, lone star defaults and Merrill collects the cdos. This ... View answer 0 votes In practice people do look at the time decay of bond portfolios, as follows: Often the "carry" is calculated , which means the profit or loss over the next day making the assumption that bond yields ... View answer 0 votes Let's take a call option on a stock with exercise price$K$. What is the risk-neutral probability of a payoff$x$? $$P(x=0) = P(\text{stock} \le K)$$ Also we have$P(\text{payoff} = x > 0) = P(\...

Your comparison is not quite apples to apples. You should compare one futures contract at (n-2) with (1+r) forward contracts. That makes them equal in terms of equity exposure. If you do this, you ...

You need to square them, add the squares , and take the square root. (Variances are additive, not standard deviations).