<t>I will have to price and hedge IRS with an average fixing.More precisely "average fixing swap " is something like this: ___(Fixed against Float)1. Fixing frequency (yearly) is different from period frequency (monthly).2. The fixing for each year is an average over a given look-back period.(typica...

I will have to price and hedge IRS with average fixing. Any suggestion ?By "average fixing" I mean : The fixing of a period is an average on all the daily fixings of a previous month.It doesn't sound much more risky than a plain vanilla IRS ... but what about convexity in this case ?Thanks.

<t>_/_/_/_/_/_/_/_/pcg wrote : the question is why (strike and maturity) and not (spot and time).anyway the original question was :QuoteOriginally posted by: jokeohHello,..i've seen some people doing this by strike and time, but it doesn't make much sense to me...Any help is much appreciated..Thanks...

You will find a very nice answer to this question (or at least part of the answer) in the FEYNMAN LECTURES ON PHYSICS.

<t>Of course an option market maker like to bucket gamma (by spot and time).In theory if you trade options you trade vega because you should hedge others greeks.In practise you probably know that it is a bit different. The delta of the portfolio is notalways zero because the trader have a market vie...

<t>No, you don't have to multiply by DV01.But DV01 tell you if the spread is reasonable.A bank who apply a spread of (1 * DV01) between mid price and bid priceis a bank who have a reasonable market maker (this mean a 2*DV01 spread between Bid and Ask).A spread of 10*DV01 for example would be crimina...

Just add that you have to combine the interest accrued convention (adjusted or unadjusted)with the payment day convention (following, preceding, modified preceding, etc...).A standard in IRS is : Modified Following Adjusted.

<t>Let's look at 4 examples:_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/effective date : 31/01/2006expiry date : 31/01/2016Fixing date : quaterlyStandard is : End of Month Roll_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/_/effective date : 30/04/2006expiry date : 30/04/2016Fixing date : quaterlyStandard is : End of Month Roll...

<t>Gjlipman,Swaps market makers do the following: Pricing the swap with mid curve (both leg with mid curve)and then from this value they apply a spread (between bid and ask).Just for information: market spreads can be as narrow as half of a basis point between bid and askfor a 10 years swap.Anyway i...

<t>If you have a rule to define your asset allocation this rule define your underlying.It “seems” obvious that you should define your underlying (running CPPI) before using a mathematical “trick” (like risk neutral valuation or any other) to solve the price of your option. In the other way, if you t...

<t>If you have a rule to define your asset allocation this rule define your underlying.It “seems” obvious that you should define your underlying (running CPPI) before using a mathematical “trick” (like risk neutral valuation or any other) to solve the price of your option. In the other way, if you t...

Uncle Alba,One more thing about "risk neutral valuation" (not "riskk free valuation" as someone write before).I want to make clear that the point here was not to check if your underlying fit the conditions for a risk neutral valuation(I assume you did this before starting your calculations).P.

<t>Hi UncleAlba,I can imagine that the two methods give not the same results since in method one you change the underlying. You just calculate the value of a call on two different underlyings. CPPI is not my expertise but it sounds to me that if you first apply any kind of mathematical transformatio...

<t>No! it is just the opposite. A swap trader usually don't say "long/short" but say :"I pay fixed or I receive fixed..." This was said before. Anyway, if you really want to speak about "buy or sell" remember that the convention in swap market is no the same as in bonds. I buy the 5 years means I pa...