<t>Your oil swap is based on the average futures price during that period. The swap fixing at the end of the month is based on the average of the daily closing futures prices during the month. Hence there is a direct relationship btwen swap n futures prices and also btwn the average option value (wh...

<t>One can show that the risk neutral prob of a put ending up in the money is N(-d2), consider the math;By normal GBM;S(T)=S*exp(-vol^2*t/2+vol*sqrt(t)*z)where r = int rate = 0 and z is the N(0,1) random variableIf it is a put for example then for S(T)<=K at T, the cut off point for moneyness is;K=S...

<t>it is the credit spread in the bond market that determines the cds spread. There is an arbitrage relationship between them since if i short a corporate bond n go long the Treasury, with same maturity, I have a synthetic bought cds position. Some adjustment needed for coupons. Where do you think m...

<t>counterparty credit risk - getting paid when the otc derivative actually goes in your favour. You can (a) try n get the client to do marginning, collaterization etc, or (b) hedge the risk in the credit derivatives market, if one actually exists for the name. Then there is the issue of credit and ...

<t>normal duration is the sum of disc factors and day count count fractions, risky is the same but weighted by the survival probability at each cash flow point. If the bond is subject to credit risk then you need to take into account the probability that you wont receive the payment at each point in...

Ri, from the derivation you have below is it correct to say that the hazard rate integral includes some form of riskless discounting? If not then surely there is some slight mispricing by this simplified formula.

<r>Economist 17Feb05 edition has a 3 page article on hedge funds and has exactly the chart you are after (funds under managment annually from 1998 till 2004 from the hedge fund reserach source). If you can log onto there website look up <URL url="http://www.economist.com/displaystory.cfm?story_id=36...

<t>As an Aussie working overseas in the markets and getting paid in USDs, I would say that in my unbiased opinion the AUD is completely overvalued. Sell it back down to 50 cents I say, so I can go back to living on the northern beaches of Sydney and resume my life long support of Carlton breweries. ...

<t>When simulating fx rates for derivatives counterparty risk measurement, most banks generally use either a drift to forward or a drift to spot methodology. Drift to forward is simply FX(t) = FX(t-1)*exp((r-g-vol^2/2)dt + vol*z*sqrt(dt)) where FX(t) = FX(t-1)*exp(r-g) is simply the fx forward and t...

isolate the equity option component of the cb, you swap out the fixed coupon on the convertible at libor + ASM. which means you have locked in the credit spread of the issuer and also have hedged the int rate risk

<t>risky duration or dv01 is;df(i) *dcf(i) * probsur(i)where df is riskless discount factordcf is the day count fractionand probsur(i) is the probability of surviving to the cashflow timeIn the example you give there will be a difference in price if there are more than one bonds out there to deliver...

<t>Jon Gregory's book "Credit" - the first few chapters are on counterparty exposure calculations. Also there are some very good chapters on simulating credit risk and recoveries. Only book which really covers this in detail. Its very pratical, reflecting that he is head of CDerivs research at one o...

Sorry - my attempt at attaching the spreadsht failed due the hard work of the wonderful IT people here at the bank. Anyhow, if you just get the last 4 yrs of data from Bloomberg the vols, correlations and composite vols are all straight forward.

<t>Consider a spread option or range accural where the spread is the 30/2 yr swap ratesHow do I estimate volatility using historical data?The spread has not been negative in the last 4 + yrs. I cannot take the lognormal returns since the spread can be negative. If I assume that the 2 and 30 yr rates...

<t>Godfather, I am glad you brought up this discussion. I believe there are many cases where market and credit risk are clearly correlated and can be measured. However, I have an exceeding difficult time convincing my credit risk officer of this. Take counterparty credit risk on a cross currency swa...