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by fyvr
May 2nd, 2020, 2:14 pm
Forum: General Forum
Topic: Nobel prize contributions and the birth of implied volatility
Replies: 12
Views: 936

Re: Nobel prize contributions and the birth of implied volatility

"Quants provide a crucial function in finding theoretical values for exotic OTC products. I never disputed this or challenged this." Well you ought to, because (given that you are specifically referencing exchange-traded options) it's nonsense. If stock XYZ 3M ATM calls are trading at $2.50, that d...
by fyvr
May 2nd, 2020, 1:51 pm
Forum: General Forum
Topic: How to select the IR curve to discount cash flows?
Replies: 5
Views: 739

Re: How to select the IR curve to discount cash flows?

This is a subtle issue, but here goes with the bare bones. You should be able to convince yourself that the correct rate to discount future cashflows, in generality, is your effective cost of funding. But what is this? 1) for perfectly collateralised trades, it is a fact (not especially obvious at f...
by fyvr
May 2nd, 2020, 1:33 pm
Forum: General Forum
Topic: Why do bond investor use par-par asset swap ?
Replies: 3
Views: 493

Re: Why do bond investor use par-par asset swap ?

Short answer (there are longer ones): the par-par ASW spread is a 'pure' credit number, in the same way that a CDS spread, or the spread on a par-priced FRN, is. Therefore it is of considerable utility from a relative-value perspective, if all bond prices are expressed as par-par asset swap spreads ...
by fyvr
May 1st, 2020, 4:38 pm
Forum: General Forum
Topic: Delta contribution to an options premium in terms of BSM
Replies: 14
Views: 1112

Re: Delta contribution to an options premium in terms of BSM

Pilgrim, the reason people are getting frustrated is that your question is meaningless. The delta does not "affect" the MTM value, it is a derivative of the MTM value. If the MTM (option premium, in your words) changes between T0 and T1 - which it is likely to do, for a whole host of possible reason...
by fyvr
May 21st, 2019, 7:07 pm
Forum: Technical Forum
Topic: Bermudan swaption misprice
Replies: 2
Views: 3700

Re: Bermudan swaption misprice

Depends a bit on the strike. The street is long up the wazoo berm vol from callables (so bid is super-soft), but massively short at ultra-low strikes from selling low-strike CMS floors as pension ALM hedges. If you’re looking at an ATM (or close) strike I’m not surprised  you found that the market b...
by fyvr
May 21st, 2019, 6:55 pm
Forum: General Forum
Topic: Bond Pricing (Illiquid Asset)
Replies: 3
Views: 2296

Re: Bond Pricing (Illiquid Asset)

If the bond has defaulted it must trade pari passu to any other bond of equivalent seniority (most likely senior unsecured). If you can find one price, of any bond anywhere, you’ve got the price of all of them .
by fyvr
April 12th, 2019, 5:27 pm
Forum: Student Forum
Topic: Interview Question on Scribd
Replies: 13
Views: 5103

Re: Interview Question on Scribd

Well, you can call it whatever you like, but it’s not really a basis adjustment in the sense that I would define the term. (For me a basis spread is just the difference between the forward curves of two near-identical observables: 3M vs 6M libor, or the delivery price of a bond future vs the forward...
by fyvr
April 10th, 2019, 1:49 pm
Forum: Student Forum
Topic: Interview Question on Scribd
Replies: 13
Views: 5103

Re: Interview Question on Scribd

Not really, and definitely no.

The formula is only rigorously true if the discount curve is the same as the forward (projection) curve.
by fyvr
April 10th, 2019, 1:34 am
Forum: Student Forum
Topic: Interview Question on Scribd
Replies: 13
Views: 5103

Re: Interview Question on Scribd

And as an aside, you should be aware that the formula you wrote down (for the par swap rate) has, strictly speaking, not been true since about 2008.
by fyvr
April 10th, 2019, 1:29 am
Forum: Student Forum
Topic: Interview Question on Scribd
Replies: 13
Views: 5103

Re: Interview Question on Scribd

1) as you’ve demonstrated, the forward period for the cap is also two years, (1, 3) in your notation. It’s not necessarily two periods either; if the LIBOR in question is 3mo then you have eight periods. 2) don’t make the mistake of getting bogged down by formalism, you need to understand things too...
by fyvr
April 9th, 2019, 9:45 am
Forum: Student Forum
Topic: Interview Question on Scribd
Replies: 13
Views: 5103

Re: Interview Question on Scribd

It’s an option, expiring in 1year, into a 2 year swap (which starts at option expiry, if exercised)
by fyvr
April 8th, 2019, 11:21 pm
Forum: Student Forum
Topic: Interview Question on Scribd
Replies: 13
Views: 5103

Re: Interview Question on Scribd

This is an interview oldie (and a famous hedge fund arb trade back in the day). To pose it correctly, you are asked to compare the vol of a 1Y2Y swaption with that of a 2yr cap out of a 1yr forward start (so the relevant forward period is identical).  Remembering that a swap rate is just an ‘average...
by fyvr
April 8th, 2019, 1:06 pm
Forum: Trading Forum
Topic: Gadget?
Replies: 10
Views: 4846

Re: Gadget?

oh ok, it’s sort of a synthetic spread to Bunds, for swaps that are traded with-delta. Thank you Bearish. 

(If you’re thinking I’m an idle sod for not doing that myself, I’m doing the Inca trail trek and weirdly there are no Bloomberg terminals to be found). 
by fyvr
April 8th, 2019, 12:21 pm
Forum: Trading Forum
Topic: Gadget?
Replies: 10
Views: 4846

Re: Gadget?

I’m sure the number is bps. For the life of me though, I can’t figure out it refers to.
by fyvr
April 7th, 2019, 4:05 pm
Forum: Trading Forum
Topic: Gadget?
Replies: 10
Views: 4846

Re: Gadget?

Yeah, I found the definition on the tradition website. The reason I posted the question is that, having read the definition, I’m still not sure what “5yr gadget = 51” actually means. Anybody able to clarify?
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