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Delta Risk DV01 - in relation to Int Rate Swaps
Dear WhoeverTwo queries:1. DV01 risk of a portfolio (IR) is calculated in my bank by parallel shift in curve by 1bp, but is the shift up or down? Or is it shifted both ways - & the worse outcome is taken as the risk?2. What is meant by Long Delta? Does this mean that the DV01 of portfolio is positive?Your help is much appreciated.Rgds,Mudster
Delta Risk DV01 - in relation to Int Rate Swaps
[1] DV01 is the impact of a one-basis point parallel shift in the zero curve. For trading purpopes I will look at the change in delta both up and down, because I need to see what happens to the portfolio if rates move a certain distance. For risk management purposes - we take it as +1bp shift.[2] If you have a long delta position then it implies to hedge this position you must go short (sell) rates.Hope this answers your questions
Delta Risk DV01 - in relation to Int Rate Swaps
The best practice for a DV01 is to go up and down half a basis point. But people often save computations by shifting rates up one basis point. There's no reason to prefer up to down, unless you're worried about rates below one basis point, but I've never seen anyone shift only down.Long delta usually means negative DV01, because people are thinking that you will make money if the price of a benchmark fixed-income instrument goes up. However, it is sometimes used to mean the opposite, because it could refer to making money if the benchmark yield goes up. Always ask.