curve bootstrappingmultiple yield curvesforward curvediscount curvebasis adjustmentquanto adjustmentGiven a forwarding LIBOR-style curve F corresponding to a fixed tenor (e.g. 6m) and an exogenous discounting curve D (e.g. an OIS curve or cross-currency basis swap curve) we build on Bianchetti'...
Figure 1.1: Cash flows of a Credit Default Swap with physical delivery CDS are quoted in terms of spread (measured in basis points) over an Inter Bank Offered Rate (EURIBOR or LIBOR depending on the currency). Assuming a constant recovery rate R for the underlying obligation, we can ea...
5 It also reflects more recent empirical findings, such as Anderson, Hammond, and Ramezani (2010) and Egorov, Haitao, and Ng (2011), that the cross-currency interest rate dynamics can be separated into common factors and local factors. These studies suggested that using a multi-factor state...
“When you’re asking for one side of that PV [present value] market, you have to calculate how much you’re being charged, what’s the real mid, is the trade PV accurate? It might be in an area of the curve where there’s not a lot of liquidity and granularity and you want to...
SwapcollateralderivativesLiborcurrencyOISbasisHJMCSACollateralization with daily margining has become a new standard in the post-crisis market. Although there appeared vast literature on a so-called multi-curve framework, a complete picture of a multi-currency setup with cross-currency basis can be ...
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where K is the annualized delivery price of the variance swaps; L is the notional amount of the swap in dollars per annualized variance point, also known as nominal principal. 2.3. Measure Transformation According to the risk-neutral pricing principle, the value of variance swaps contract at tim...