<t>HI,I am working on some pricing models for constant maturity swaps. I was thinking about setting up a Libor Forward Model based on the dynamics of forward LIBOR rates (LMM). I thought that this was necessary, since a model where I model the dynamics of the swap rate directly would not work. After...

Thanks guys! I also found a pretty good explanation in Brigo&Mercurio's book.

<t>From a theoretical perspective, the use of the Black ?76 model for several types of interest rate products (futures, caps, floors, swaptions) is said to be inconsistent. A lognormal forward rate is not consistent with a lognormal swap rate. Likewise, a lognormal bond price is not consistent with ...

<t>Thanks Cuchulainn, but this does not solve the problem unfortunately. I was hoping somebody could answer the exact questions I have:1) What does the '...' mean in the instructions? And how to I create the following rows myself in e.g. IDLE?>>> eu_option = BinomialEuropeanOption ... 50, 50, 0.05, ...

<t>I am working on a object oriented library for financial instruments valuation. I am working my way through a few examples of code I found in the book ?Mastering Python for Finance?In chapter 4 of that book, there is code to create a StockOption class to store and calculate the common attributes o...

<t>I use Quantlib and other packages for building a library of valuation models for derivative financial instruments in Python. Some of the pre-defined functions I use a lot. I would like to understand the code underlying the functions in the libraries I use. Is there a way for me to do that? I am e...

<t>Thanks guys!Unfortunately, I still do not get it. Why would the money market account be the 'wrong' martingale measure here? Why do we have to change the numeraire?And - once it becomes clear that we need the change in numeraire - why should this be the T-forward measure? (For this second questio...

<r>I am struggling to understand the need for the T-forward measure. Pls. find below my workings (since I could not find a lot of additional information in the CQF slides, I based my studies on an article by Fabrice Rouah - <URL url="http://www.frouah.com/finance%20notes/The%20T-Forward%20Measure.pd...

<t>I think I understand why you are confused. The second type of contracts should read '2) The swap's amortization schedule is stochastic, but determined by events that are correlated with interest rates (for example, CPR)'.I am doing some research on the valuation methods applied to pre-crisis CDOs...

<t>Thanks for you responses.So I am now trying to inventorise for what swaps that I have to value this adjustment is necessary. Conceptually, there are 2 types of amortisations:1) The swap's amortization schedule is set in advance, regardless of movements in interest rates2) The swap's amortization ...

<t>HiI have exactly the same question as raised in this thread. I don't fully understand the accrual method. I have studied the technical note in Hulls book on the subject (technical note 19), but there is something in there that puzzles me. It is stated that we can borrow an amount of E/E(0)*Notion...

<t>I am valuing a series of asset swaps that are balance guaranteed swaps (BGS). This means that the owner of these swaps is hedged for prepayment risk, i.e. the owner would not have to rebalance the notional of the swap ?manually? but this is done automatically when a repayment takes place on the a...

<t>Hi,I do not fully understand why we use forward interest rates as an estimator of future cash flows of floating legs of swaps. Shouldn't we use an estimation based on a model like Hull-White, just like we would for an interest rate cap?When can you use forward rates as an estimator of expected fu...

<t>I think I got it. I just have one additional question: If you do not want, or can?t build the curves yourself , would the following short-cut using Bloomberg - in your opinion - lead to a mistake in my valuation?1)forward rates on USD leg based on 3M USD Libor2)discounting using zero rates based ...

<t>Thanks for your reply! Reading it, i realise that I forgot to give you one crucial piece of the puzzle. Collateral is only posted in Cash, and only in Euro's. To me, EONIA is the curve to use for discounting a fully collateralised IRS (daily margining, zero threshold). My question is: how to acco...