Thanks for your insights! Sorry for not being specific earlier, I am referring to a specific discussion in Rebonato's book "Modern Pricing of IRD" : The naive traders simply did not appreciate the subtle, but fundamental, difference between the Black and the Black and Scholes formulas and ...

Hi all, if we price Bond option using Black-Scholes modelling bond spot, I understand there is a pull-to-par effect. The vol tends to 0 as bond reaches maturity. I read that this issue is circumvented when Black formula is used instead, modelling Bond Forward. Doesn't the forward price also tend tow...

<r>revisiting this topic:<URL url="http://www.stirfutures.co.uk/?p=214so">http://www.stirfutures.co.uk/?p=214so</URL> collateralised swaps/FRAs behave in the same way as futures, so there are no convexity bias between them.so this follows that:Removing convexity bias when using Eurodollar futures pr...

<t>appreciate your ever-present replies.Btw, I thought the multi-curve world will not add any more complexity, other than an upfront deterministic spread on a base curve (usually libor) to denote the multi-curves?So convexity adjustment issue will no longer be relevant for Range accruals if we use m...

<t>Hi, I understand the need for convexity adjustments in the following payoffs:-libor-in-arrears-futures when used in curve buildingI understand these adjustments from the angle of "early payment advantage", where an investor has a choice of investing a payment at a higher rate (when he is in recei...

Hi all,should calendar spread no-arbitrage check hold for swaption vol surfaces?To be specific, should increasing option maturity for underlying constant maturity swaps, corresponds to increasing option premium?Thanks.

<t>Hi, would anyone here share with me the historical context of monitoring basis risks? My understanding is that cross-currency basis risk were monitored since Day 1, but tenor basis risks (e.g. LIBOR3M/6M, FF/LIBOR...) were not actively monitored (as spreads were small) until the 2008 financial cr...

<t>I believe you got it the other way round.It is compounding which requires convexity adjustment, and average which need not.Compounding removes the early payment advantage afforded to an identical non-compounded swap, where he can re-invest the proceeds when rates are high, and borrow his liabilit...

<t>Hi, I understand the Black model framework used to price a cap assumes lognormality of the libor, while the Black model framework used to price a swaption assumes lognormality of the swap rate.They cannot both be correct, since a basket of lognormals is not lognormal. Here I am reading a text by ...

<t>QuoteOriginally posted by: bcf however, he also later states on p. 366 that the risk-neutral spot rate satisfies [$] dr = (u - \lambda w)dt + w dX[$], where [$]\lambda[$] is the market price of risk. Here, it seems like [$]X[$] should be a Brownian motion w.r.t the risk-neutral measure, but he do...

<t>QuoteOriginally posted by: briankimBut it doesn't seem to be the case. There's a LIBOR curve for each 4 different tenors. Given this, what does the value of 1M LIBOR curve at 1Y point?And, when you model LIBOR using short rate model, you're modelling the unique LIBOR short rate, not the LIBOR of ...

<t>QuoteOriginally posted by: acastaldoA stock is at 100, both you and daveangel buy an ATM 6-month put, but you buy a European put and daveangel an American put.The next day a terrible event happens and the stock plunges to 1 a share. Analysts predict that the price 6 months hence will be between 0...

<t>Hi all,I refer to JPY OIS -- Curve 195 from BBG, which is built with a o/n deposit tenor, and from 1W-40Y, swap rate paying annual fix and MUTAN o/n for 1 Yr.Firstly, is the OIS averaged across the year, or compounded daily?Secondly, are there any other market making standards to build this curve...

Hi,this paper:www.yetanotherquant.de/libor/tutorial.pdfbrings you from zero to HJM in 9 pages.Hope it helps.

Ok, got the intermediate answer. Line A describes a set of points (G0, G1) whose gradients are 0 at G0. It follows that Line B describes a set of points (G0, G1) whose gradients are 0 at G1. What exactly are the adjustments made to Region 2,3,4?