CMS spread accrual

BlueDonauRive · September 4th, 2007, 11:23 pm

actually the problem is to find the probability: Prob(CMS10Y－ CMS 2Y <－0.1%)＝?CMS = constant maturity swapmy MSN, functionalanalysis@hotmail.commany thanks !

richbrad · September 5th, 2007, 8:15 am

What information do you have??

BlueDonauRive · September 6th, 2007, 5:31 am

i need the method to estimate the probablility.CMS data can be achieved from Bloomberg.

richbrad · September 6th, 2007, 7:00 am

Do you want to estimate using the historical volatility or do you want to get to the market levels for the spread options? If you just want an estimate of the spread volatility then, if you have a dollar product (which guess is what you are after) then you could enter USSW2 Index USSW10 Index HS, which presents you with the historical movements of the spread and its analysis, from which you could guestimate the probability you are after. FYI - it is close, if not equal to 0%.

BlueDonauRive · September 12th, 2007, 5:52 am

Thanks for your helps first,actually, I want to estimate the net cash flow our comapny would receive in 3 months later.the formula of net cash flow: $100 million * [(8/7.5)*(N/M)-1], Here N = the number of days which satisfie the condition CMS10Y-CMS2Y >=-0.10% M=90 ( 3 months)that is all information i have.