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TinMan
Posts: 613
Joined: September 21st, 2006, 9:42 am

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May 6th, 2012, 9:28 pm

QuoteOriginally posted by: deepdish7 Guys come on, let's keep discussion in a more constructive tone. Well why don't you be constructive and explain it to him then?MG is a far more patient individual than me and he's tearing his hair out, so why don't you answer his inane question and see how long you can stay 'constructive'.My bet if you try is that you'll be in the 'unconstructive' camp before too long.
 
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list
Posts: 2041
Joined: October 26th, 2005, 2:08 pm

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May 6th, 2012, 10:45 pm

boys everything is fine and life with finance is beautiful. i've got what i wished to know. sometimes for stupid questions it is impossible to find reasonable answers and i am thankful for yours tolerant and sorry for been so upsetting.
 
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daveangel
Posts: 17031
Joined: October 20th, 2003, 4:05 pm

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May 7th, 2012, 4:56 am

QuoteOriginally posted by: listboys everything is fine and life with finance is beautiful. i've got what i wished to know. sometimes for stupid questions it is impossible to find reasonable answers and i am thankful for yours tolerant and sorry for been so upsetting.this is the Socratic method as utilised by list. When you dont care for the correct answers you are given, pretend that nobody except yourself knows whats what.
knowledge comes, wisdom lingers
 
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Cuchulainn
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Joined: July 16th, 2004, 7:38 am
Location: Amsterdam
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Negative Swap Spreads

May 7th, 2012, 5:46 am

QuoteOriginally posted by: listboys everything is fine and life with finance is beautiful. i've got what i wished to know. sometimes for stupid questions it is impossible to find reasonable answers and i am thankful for yours tolerant and sorry for been so upsetting.There are a number of articles post-2007 on this subject. How do your results compare?
 
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list
Posts: 2041
Joined: October 26th, 2005, 2:08 pm

Negative Swap Spreads

May 7th, 2012, 10:13 am

There is often a difference between theory and market. Sometimes market practice can explained from theoretical point sometimes not.For example, if we talk about Libor as a borrowing rate I think the theoretical rate calculations should be similar to what one was outlined in http://ssrn.com/abstract=1971373 , FX Basic Notions and Randomization. The similar idea I read somewhere for the derivation probably Interest Rate Parity. It is easy to calculate implied Libor using available data. Market practice is different and it is a law. One time quite recently it was a short news about Panel manipulations. After 2007-08 market was changed. It was observed deviations between primary rates. From my point of view there are economical background. Primary financial institutions that were closed to default were pumped by money ready for borrowing. Subjectively, these institutions were need new rates for practice. Such one rate is OIS though it is only intuition and there can be other reasons for using OIS. OIS as any other can be represented in the discounted form. This rate can be primarily lower than correspondent treasury rate that I think remains for T-bond prices calculations and should be interpreted as the primary discount rate in USA. If in future it will clear that OIS rate does not good to use they might return to old practice of discounting swaps. The existing theoretical contradictions treating OIS as a new discount rate rather practically negligible as it still does not discussed.
 
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list
Posts: 2041
Joined: October 26th, 2005, 2:08 pm

Negative Swap Spreads

May 7th, 2012, 12:33 pm

it might be we can treat a rate discount if there is no arbitrage between this rate and T-rate. For example the cheapest to delivery option shows that at any moment exists a set of rates that could be interpreted as discount rates and one uses the rate that looks better for the business. Theory just will help correctly interpret practice though can also help to note existing contradictions
 
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deepdish7
Posts: 45
Joined: October 16th, 2010, 6:57 pm

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May 8th, 2012, 4:47 pm

I again have difficulty understanding this. What do you mean the rate that 'looks better for the business'? Like if you were writing in some foreign language and using google translate to translate into English. Many things make sense separately but when combined I can't understand the whole picture in your posts
Last edited by deepdish7 on May 7th, 2012, 10:00 pm, edited 1 time in total.
 
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deepdish7
Posts: 45
Joined: October 16th, 2010, 6:57 pm

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June 11th, 2012, 9:50 pm

So looks like list has given up on the below?
 
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list
Posts: 2041
Joined: October 26th, 2005, 2:08 pm

Negative Swap Spreads

June 12th, 2012, 12:48 am

QuoteOriginally posted by: deepdish7So looks like list has given up on the below?There are 3 popular rates have been used for discounting $-denominated IRS: T-bond , LIBOR , OIS. If you know a formal proof for using the one could you please to present a reference. If we do not have a formal proof why one rate should be universal then the common practice suggests using one which is better for the business and there is no formal way to reject such pragmatism.
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