However, the complication is that if you look at historical CDRs for legacy portfolios, although these also declined from a peak in 2009 although way up to 2014, they have remained flat since then. This trend is blamed on the foreclosure pipeline, which is still sizable and due to limited capacity by servicers to process backlog of foreclosed loan, liquidation rates (CDR’s) have remained steady. I therefore think that projecting CDRs to decline immediately is somewhat optimistic but how to best to predict when CDRs will decline is the issue. I wonder if anyone has analysed this or might have any insights.

Statistics: Posted by King100 — April 21st, 2017, 9:51 am

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Try the following. Request a daily series of discount factors from your curve, then compute one-day forward discount factors, then back out one-day forwards. Do this for every day in between effective and maturity. Now, compute the floating leg by the compound interest accrued over the length of the leg, and then normalize this by the fixed leg day count fraction ACT360. This should result in the input rate. I am just spelling out the computation found in the note I referred you to.

Statistics: Posted by mtsm — April 21st, 2017, 2:21 am

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MTSM, regarding your earlier point. I did look at ICVS but that didn't help too much, the stripped curve part of that screen shows payment dates rather than maturity dates. What I've been using is the Bloomberg Curves toolkit in Excel. I've been stripping the curve as A1 = Bcurvestrip("USD.OIS") and then getting zero coupon mids and discount factors using

bcurveint(A1,"ZC.MID",DATE)

bcurveint(A1,"DF.MID",DATE)

Putting in all good dates within the next month, you get rates lower than 91 basis points, even as low as 62bp. Hence, my confusion which is lines up with Maynyz's "thought experiment".

I think part of the issue is that the USD.OIS curve doesn't necessary use the same compounding and frequencies as the swaps but I struggle to see how it would have that big of an effect.

Statistics: Posted by awc — April 20th, 2017, 2:53 pm

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So the instrument goes strictly between 4/20 and 5/4. The 5/8 is for practical purposes only. There isn't any rate accruing beyond 5/4. If you know the OIS fixed rate between 4/20 and 5/4, you can compute the accrued interest between these two dates or vice versa back out a discount. That's all there is to it, it doesn't matter whether the payout is on the 8th.

I am not sure if the OP is confused or not, but it sounds like the only way to get a significantly smaller par rate, would be to compound the the floating leg between 4/20 and 5/4, but have the fixed run between 4/20 and 5/8. Given the floating fixings, you can back out the par rate this way and the extra 4 days accrual on the fixed side would account for a larger day count fraction, which would explain why the OP got the smaller rate.

Statistics: Posted by mtsm — April 20th, 2017, 1:26 pm

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Statistics: Posted by Magnyz — April 20th, 2017, 1:14 pm

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What BBG functionality are you referring to? ICVS 42? Maybe what thety do is right and you are misinterpreting what they do.

Maybe if you highlight what you mean by "deriving the discount factor from the par OIS rate", it will become clear. Can you be more explicit?

Statistics: Posted by mtsm — April 20th, 2017, 12:58 am

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Exactly. Maybe somebody needs to write a book for quants: "How to check your work".

Yes! That's a very good idea.

Also for traders to help backtest trading strategies. Those always perform good on historical data but never going forward.

Statistics: Posted by outrun — April 19th, 2017, 8:39 pm

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They include the pay lag in the daycount for the discount factor/zero rate calculation; i.e. their discount factor for the 8th is the instrument maturing on the 4th, so the zero rate goes down to 61 bps (so less than the effective fed fund rate).

I'm of two minds, my first instinct was the same as you; why would you include the lag.

But thinking about it from a no arbitrage standpoint, shouldn't you be able to roll a repo from the swap start to PAYment date and have no arbitrage (assuming no change in repo rates).

Statistics: Posted by awc — April 19th, 2017, 3:12 pm

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The pay-lag exists because of the delayed publication of the fixing. Not sure why you want to use it to compute anything. The instrument in your example ends on the 4th, not the 8th.

Statistics: Posted by mtsm — April 19th, 2017, 2:43 pm

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