By Howard Corb
ISBN-10: 0231159641
ISBN-13: 9780231159647
The first switch used to be performed over thirty years in the past. when you consider that then, the rate of interest swaps and different spinoff markets have grown and different in exceptional instructions. Derivatives are used this present day through a myriad of institutional traders for the needs of chance administration, expressing a view out there, and pursuing industry possibilities which are another way unavailable utilizing extra conventional monetary tools. during this quantity, Howard Corb explores the thoughts in the back of rate of interest swaps and the various derivatives that developed from them.
Corb's publication uniquely marries educational rigor and real-world buying and selling event in a compelling, readable kind. whereas it truly is packed with subtle formulation and research, the quantity is aimed toward a variety of readers looking for an in-depth figuring out of those markets. It serves as either a textbook for college students and essential reference e-book for practitioners. Corb is helping readers increase an intuitive suppose for those items and their use out there, supplying a close advent to extra complex trades and constructions. via examples of economic structuring, readers will come away with an realizing of the way derivatives items are created and the way they are often deconstructed and analyzed effectively.
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Extra info for Interest Rate Swaps and Other Derivatives
Example text
32 A $500mm Treasury trade is a big trade. Maybe the price on the screen of 101-16 is good for $25mm Treasuries. Suppose that if the dealer goes in to the Treasury market to buy another $50mm, this will push the 32 The swap dealer would not necessarily have to buy exactly $500mm Treasuries to hedge himself since the interest rate sensitivity of a swap (which we haven’t talked about yet) per million notional is not generally equal to the interest rate sensitivity of a Treasury of comparable maturity per million principal.
6. 565%. 7) The annual money rate is lower than the annual bond rate, reflecting the fact that the fixed rate receiver in the annual money swap gets the benefit of accruing the fixed rate for an extra five or six days a year (depending on whether or not it’s a leap year). In order to see why this is, consider again a notional of $100mm on the swap and assume that we receive fixed. 615% × 360 = $3, 615, 000. , it is not a leap year). 615% × 365 = $3, 665, 208. 360 Although we would strongly prefer then to receive the same fixed rate paid annual money (as doing so would mean we would receive $3,665,208 per year versus only $3,615,000), our counterparty would surely be opposed to this.
Treasury currently issues notes maturing in 2, 3, 5, and 7 years on a monthly auction schedule and 10-year notes and 30-year bonds on a quarterly schedule (with monthly reopenings of these latter two). Swap spreads for swaps of each of these benchmark maturities are quoted as a spread to the respective on-the-run Treasury yield. 18 16 It is commonplace when speaking about a swap to refer only to the fixed side. If it is stated that a counterparty is paying, that means the counterparty is paying fixed and receiving floating.
Interest Rate Swaps and Other Derivatives by Howard Corb
by Kenneth
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