Hi All,  I have read through Pat Hagan's article (http://www.javaquant.net/papers/ConvexityConundrum.pdf) as well as Fabio Mercurio's articule on CMS convexity adjustment (http://www.fabiomercurio.it/sabrcms.pdf). However, I have difficulties connecting the arguments stated in each article. I truly ...

Do you know what the rationale is to divide the convexity number by 100 in DavidJN's result? result = (pyieldup + pyielddown - 2.0*dirty_price) / (dirty_price*shift*shift*100.0);

<t>Yes, I did and when the two assets have the same vol with correlation of one. Hedging the two assets individually vs hedging the basket index will give me the same result. Then I tried shifting the correlation to 0.2, hedging the basket index still works but hedging the two assets individually cr...

daveangel, The option is priced under a blackscholes framework using a combined volatiltiy number from the 2 assets (i.e. square root of variance of the basket). So I guess I have assumed the 50/50 split to be constant across the time horizon. seahawk

<t>theperfecthedge/erstwhile, I know this thread has been up for a while. I recently tried to illutration that delta hedging could use to replicate a put option. I succesfully do that by generating lognormal prices, assuming volatility and interest rate remain constant and the same when the put opti...

<t>Hi All, I implemented the discussed method but some how I couldn't add up the KRD to equal my DV01. The more KRD I introduced into my program the higher the deviation from the DV01. I am doing this for CMS caps and LIBOR caps. Any reason why this would happen? Should it just be a programming erro...

Could anybody help me to confirm this? Thanks!

<t>Thanks Icecloud. Let me put a spin to this question. say we invest in a CAD bond but we want to elminate the currency risk. So we enter into a CAD currency swap and pay CAD interest rate and receive USD interest rate. so we exchange principal in the beginning, we pay USD and receive CAD and use t...

<t>I have a related question on Currency Swaps. Say I, Party A entered into an agreement with Part B. We pay CAD fixed interest rate and received USD fixed interest rate for 5 years and we exchange principal upfront( ie. we received CAD principal and paid USD principal)1 Year later the swap value $1...

<t>Hi, Anyone could give me an independent check of a series of cap prices as of 5/29/2009? I am looking for a several year forward 4 year CMS caps last for 1 year that strike at 8%. Here is what I got: 1 year forward : Vol 34.55%, Forward Rate 3.55% Price - 1bp1 year forward : Vol 27.74%, Forward R...

David, How does the Canadian Mortgage Bond program affects the swap rate? Does that mean it causes the demand of Canadian Treasury to go down which drive up the treasury rate to be above the swap rate? Thanks!

<t>Hi All, Recently I looked at the historical data of 5 year canadian swap rate vs 5 year generic CA governement bond rate on Bloomberg and found out that the swap spread has been negative since last November? Could anybody explain why this would happen? Does that mean the credit risk of government...

<t>Hi All, I try to download Bloomberg data and somehow it is not refreshing. All I got is something like "N/A Data Request". I have already added the refresh all workbook like but it's still not doing the job. The trick seems to be due to the fact that I have a command to paste value the bloomberg ...

<t>Hi all, I have another questions on option greeks. I find out that some put options' gamma is negative. Here is how I define gamma:Gamma = (Delta at S*(1.01) - Delta at S*0.99)/2 . i.e. the average change of my delta per 1% change in index. Delta at S is calculated by (Option Price at S*1.01 - Op...