<t>@DavidJNMy point is that credit risk is taken care of in a separate charge and is not necessarily a cause for a difference in par rates of collaterlised and uncollateralised swaps. If we exclude CVA, what is the difference between collaterlised and uncollateralised swaps? IMO the difference is ju...

<t>Thanks for the replies. Having dug into this a little more, as far as I can tell, most banks that use LIBOR discounting for uncollateralised swaps seem to use Dual Curve Bootstrapped forward rates and a vanilla (non-DCB) LIBOR curve for discounting, or perhaps a LIBOR curve plus a funding spread....

<t>Hi all,I have a issue concerning the discounting for uncollateralised swaps. I know that some banks still use LIBOR discounting for these trades, while using OIS discounting for collateralised trades. This makes sense the me (whatever Hull and White say) as the LIBOR rate is close to the market f...

<t>From what I know, a lot of academic courses still seem to ignore OIS discounting when they teach yield curve modelling, which seems pointless. I do not know the Mercurio paper you are referring to, but most LMM that include OIS discounting are tedious and notationally complex.I was at a talk rece...

<t>Hi all,I am looking at implementing the Jarrow Yildirim model for the purpose of calculating Inflation on CVA. On first inspection, I see there are three processes - the nominal and real short rate processes and the Inflation Index process.Is it the case that only two out of the three of these pr...

<t>For energy commodities at least, in my opinion, cointegration relationships are primarily driven by fundamental relationships e.g. the relationship between power and gas is driven by the efficiency of CCGTs. When cointegation relationships change, I would expect that this is due to a change in th...

<r>The following two papers provide what I was looking for and may be of interest to others. <URL url="http://www.watc.wa.gov.au/CLIENTS/PDF/FRN%20Example.pdfThe">www.watc.wa.gov.au/CLIENTS/PDF/FRN%20Example.pdfThe</URL> FRN pdf at:<URL url="http://www.jse.co.za/Products/Information-Products/Informa...

<t>The question is, what exactly do you mean by "Credit Spread"?The Discount Margin should be roughly equal to the Option Adjusted Spread for an FRN.For the FRNs that I have seen (e.g. EURIBOR based CCTs) there is a difference of about 4-5 bps. The people at Bloomberg tell me that this is because th...

<t>Hi,I'm no expert, but since there have been so many views of your post without reply, I will offer the obvious:IMO, interest is accrued over 7 days, so the DF applies to the end date. Isn't payment date irrelevant for the interest accrual and so the 1Wx2W pricing should ignore the payment date? <...

<t>Hi,Could someone provide a good reference on defaultable FRNs?Most of the articles that I have seen are all based on the simple default-free assumptions, while more up-to-date texts (e.g. Brigo & Mercurio II, Schoenbucher) develop a framework for finding the price given the LGD and prob of de...

<t>Or perhaps the reason is as simple as the fact that even though the cost is 0, overall, I am taking on risk - the risk of a short call being open-ended. Therefore, the overall position is short and analgous to a short cap or call option where the option writer receives money but gives away time v...

<t>Thanks for your reply DocToc.By short collar I mean short cap and long floor. Both are OTM. Copy and paste the Bloomberg data below into Excel and you will see that the values in the Time PV column sum to a negative number and the values in the Intrinsic PV sum to a positive number. I don't think...

<t>Hi all,I am currently evaluating EURIBOR zero-cost collars for hedging purposes. I noticed that while the total NPV of such a strategy is 0, the intrinsic and time values are non-zero (but with opposite sign). Intuitively I would expect a zero-cost strategy to have zero time value. In particular,...