Interest rate risk with only swaps

krishnan · July 9th, 2012, 5:44 am

I saw this stream of questions quite interesting. I was wondering if someone can help in suggesting some solutions. I was wondering how someone can hedge interest rate risk in the short end portfolio with only swaps? I would like to come out with a solution from operational perspective to hedge IRR( interest rate risk ) against non parallel shift of yield curve. I would indeed appreciate any suggestions.Cheers,Elan

chilun · July 11th, 2012, 8:09 am

How about OIS swap?Suppose you have a short tenor deposit / loan. The OIS swap can convert your interest rate risk exposure to overnight which is very small?

krishnan · July 18th, 2012, 11:41 am

Thanks indeed, but what about the spreads between the OIS and the swap curve( eonia 1m, 6m)? will this not cause me liquidity risk?

Martinghoul · July 18th, 2012, 11:47 am

There is no such thing as an EONIA 1m or 6m swap curve (not at the moment, anyways). You're very confused, krishnan.