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by Kamil90
April 24th, 2014, 1:49 pm
Forum: Student Forum
Topic: Convexity correction for CMS and swap in arreas
Replies: 7
Views: 5933

Convexity correction for CMS and swap in arreas

<t>Related question to the convexity in EDFutures/Forwards. The ED Futures have no convexity(defined as second derivative) as an instrument itself. In fact, every move in 1bp is a constant Pv change of $25, so the first derivative=const=$25 and second derivative is 0. However, the convexity that ari...
by Kamil90
April 21st, 2014, 8:51 pm
Forum: Student Forum
Topic: how to do PnL for an option
Replies: 1
Views: 4988

how to do PnL for an option

<t>I understand that PnL is just a Taylor expansion, but what I can see that there multiple ways different companies approximate it. In particular, I can have an option which comes with yield curve and modelvolcube and there are different components that represent changes in PV with respect to chang...
by Kamil90
April 21st, 2014, 8:25 pm
Forum: Student Forum
Topic: Convexity correction for CMS and swap in arreas
Replies: 7
Views: 5933

Convexity correction for CMS and swap in arreas

<t>QuoteOriginally posted by: daveangelI assume that you are talking about interest rate futures like Eurodollar. The convexity adjustment arises due to the margining of the futures contract. the long of the contract has the view (theoretically) that interest rates should fall - however, if they do ...
by Kamil90
April 21st, 2014, 4:59 pm
Forum: Student Forum
Topic: Convexity correction for CMS and swap in arreas
Replies: 7
Views: 5933

Convexity correction for CMS and swap in arreas

<t>QuoteOriginally posted by: bearishThe various convexity adjustments are definitely model dependent. In the extreme, an arbitrage free model with zero volatility will not give raise to any adjustment, since rates will just follow the initial forward curve. What all convexity adjustments (including...
by Kamil90
April 16th, 2014, 5:42 pm
Forum: Student Forum
Topic: Convexity correction for CMS and swap in arreas
Replies: 7
Views: 5933

Convexity correction for CMS and swap in arreas

<t>I was reading about the plain CMS rate payoff(reset the swap rate in the future and pay that right away) and swap in arreas(reset a libor rate in the future and pay that right away). Both have a convexity correction and a computation of a rate as of today ends up being a sum of spot rate(swap spo...
by Kamil90
March 30th, 2014, 6:59 pm
Forum: Student Forum
Topic: Price quote of FRAs
Replies: 9
Views: 5144

Price quote of FRAs

<t>yes, this is what I am confused about. QuoteOriginally posted by: DavidJNThere is a chicken and egg problem here because to derive the convexity correction for interest rate futures inputs (e.g. Eurodollar contracts) you need the zero curve, but the true zero curve is adjusted for the convexity c...
by Kamil90
March 28th, 2014, 4:10 pm
Forum: Student Forum
Topic: Price quote of FRAs
Replies: 9
Views: 5144

Price quote of FRAs

<t>ok, I understand that YC captures the information about the market and therefore affects the forward quote. But, would that have the same affect on the futures' quotes? If so, I include futures and forward market in the construction of the yield curve and do use the information from both markets....
by Kamil90
March 28th, 2014, 1:21 pm
Forum: Student Forum
Topic: Price quote of FRAs
Replies: 9
Views: 5144

Price quote of FRAs

ok, but how do traders come up with a quote for this rate? Are they calculating or adjusting the (1-Future Quote)?
by Kamil90
March 28th, 2014, 12:30 pm
Forum: Student Forum
Topic: Price quote of FRAs
Replies: 9
Views: 5144

Price quote of FRAs

<t>I am not a practicioner and trying to understand the details between forwards and futures. Futures are exchange traded, so the price is available on the market, but how do one quotes FRAs? I see from a wilipedia page that I can calculate the amount one is getting at the settlement date, so does o...
by Kamil90
March 17th, 2014, 2:40 pm
Forum: Student Forum
Topic: conversion of daily vol to annual vol
Replies: 1
Views: 5088

conversion of daily vol to annual vol

<t>I am confused about different scales for volatility. Tipically, in the BS framework, one would say, take vol as a fixed number, say 20%. I assume this is annualized. That is, how much volatility the underlying accumulates over the year. But then, I fail to understand the explanation why one would...
by Kamil90
September 24th, 2013, 4:38 pm
Forum: Student Forum
Topic: shape of a forward curve
Replies: 2
Views: 6507

shape of a forward curve

Thanks for the reference.
by Kamil90
September 23rd, 2013, 8:25 pm
Forum: Student Forum
Topic: Why does volatility increases with square root of time?
Replies: 21
Views: 33304

Why does volatility increases with square root of time?

<t>If I were to estimate variance numerically, the approximation coulf be written as Var(T_N)=1/N sum_{i=1...N}(x_i-\bar{x}), so in some sense this is the average squared deviation from the mean of the sample {x_i}. However, assume at the next T=T_N+1 the x_{N+1}==\bar{x}, then the estimate Var(T_N+...
by Kamil90
September 20th, 2013, 8:57 pm
Forum: Student Forum
Topic: ISDA details
Replies: 3
Views: 6220

ISDA details

<t>QuoteOriginally posted by: MartinghoulIn this context "ISDA" is just shorthand for "ISDA Master Agreement". You can find a lot of information on it out there on the web, but, to answer your question somewhat, no, a new ISDA doesn't accompany every single new OTC transaction. There is a single ISD...
by Kamil90
September 20th, 2013, 4:18 pm
Forum: Student Forum
Topic: ISDA details
Replies: 3
Views: 6220

ISDA details

<t>I see ISDA get mentioned a lot in the interest rate market. And I have read some wiki on it. What I understoon any two parties entering a swap issue an ISDA between them with all details. Does it mean that there is always ISDA coming with each trade the broker executes? It seem to be an extensive...
by Kamil90
September 18th, 2013, 6:40 pm
Forum: Student Forum
Topic: BBG swap rates quotes
Replies: 9
Views: 6450

BBG swap rates quotes

<t>How about Libor rates? Are they provided at 11 am every day by the BB Agency and then BBG just copies them and posting? Or Bloomberg has an independent quotes they are calculating themselves along with London Agency?QuoteOriginally posted by: MartinghoulThey aggregate multiple broker quotes. If i...
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