Interest rate swaps and other derivatives


Please select Ok if you would like to proceed with this request anyway. Various history myths exist for the first Eurodollar creation, or booking, but most trace back to Communist governments keeping dollar deposits abroad:

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Valuing Caps and Floors -- 4. Variations of Standard Caps and Floors -- 5. An Introduction to Swaptions -- 5. The Value of Swaptions at Expiration -- 5. Swaption Parity -- 5. Uses of Swaptions -- 5. Valuing Swaptions Using Black's Formula -- 5. Swaption Vol -- 5. Pricing Swaptions in Our Stylized Example -- 5.

Are Interest Rates Lognormal? Swaption Prices and Implied Vol -- 5. The Normal Model -- 5. The Model -- 5. Pricing Under the Normal Model -- 5. The Industry Standard -- 5. Bermudan Swaptions -- 5. Optimal Exercise of Bermudan Swaptions -- 5. Valuation of Bermudan Swaptions -- 6. Swaps with Embedded Options -- 6. An Underlying Concept -- 6. Cancelable Swaps -- 6. Some Uses of Cancelable Swaps -- 6.

Solving for the Fixed Rate in Cancelable Swaps -- 6. Bermudan Cancelables -- 6. Index Amortizing Swaps -- 6. An Explanation of the Trade -- 6. Pricing Index Amortizing Swaps -- 6. Knockout Swaps -- 6. Swaps with Convexity Adjustments -- 6. CMS Swaps -- 7. Structured Notes -- 7. The Rise of the Structured Note Market -- 7. A Glossary of Structured Notes -- 7. Size of the Market -- 7.

What Are Structured Notes? A Prime Floating Rate Note -- 7. Capped Floaters -- 7. Pricing Up a Capped Floater -- 7. Inverse Floaters -- 7. Pricing Up a Leveraged Inverse Floater -- 7. Orange County -- 7. Range Notes -- 7.

Binary Accrual Notes -- 7. Regulatory Response -- 7. Non-Inversion Notes -- 7. The Pricing of Non-Inversion Notes -- 8. Relative Value and Macro Trades -- 8. Carry and Roll-Down Analysis -- 8. Curve Trades -- 8. Forward Yield Curve Trades -- 8. Conditional Yield Curve Trades -- 8.

Trading Swap Spreads -- 8. Spread Trades for Longer Holding Periods -- 8. Spread of Spread Trades -- 8. Conditional Spread Trades -- 8. Asset Swaps Revisited -- 8. Asset Swap Math -- 8. Asset Swaps Today -- 9. More Recent Product Innovations -- 9.

An Introduction to Correlation Trades: Caps Versus Payer Redux -- 9. Forward Vol Trades -- 9. Description of Forward Vol -- 9. Heuristic Pricing of Forward Vol Trades -- 9. Bermudan Cancelable Swaps Revisited -- 9. Curve Options -- 9. Implied Correlation -- 9. Implied Volatility Versus Realized Volatility -- 9. Supply and Demand of Curve Options -- 9. The Pricing of Curve Options -- 9.

A Couple of Trades -- 9. Delta Hedging Curve Options -- 9. Refresher in Option Pricing -- A. The Basics -- A. Boundaries on Option Prices -- A. European Put-Call Parity -- A. Binomial Pricing -- A. Multiperiod Extensions -- A. The Black-Scholes Formula -- A. Option Sensitivities -- A. Binary Options -- A. Delta of Binary Options -- A. Vega of Binary Options -- A.

Present Value -- B. Macaulay Duration -- B. Modified Duration -- B. Effective Duration -- C. There are also other factors like regulatory capital, tying up balance sheet for 6m, etc. So the text book case where the 3x6 FRA or front Eurodollar is equal to the implied 3m forward rate derived from 3m and 6m libor fixings is an academic fiction.

In reality the 3x6 FRA will always be lower than the impled forward calculated from the 3m and 6m fixings. This is "the basis". In the past it was negligible, but since it is significant. As the swap rates that you cite are vs 3m floating rates, the fixed rate on those swaps reflects expectations of future 3m fixings, not 3x6, 6x9, That is why the 2y swap is about 37bps. If the 2y swap were vs 6m floating, it would probably trade around bps. In other words, the swap rates reflect the money market basis on the tenor of the floating leg.

Well, 6m Libor isn't directly tradeable, none of the products above would use it for pricing. ED uses 3m, ir swaps floating leg also uses quarterly payments hence 3m.

How would you arbitrage 6m Libor? By clicking "Post Your Answer", you acknowledge that you have read our updated terms of service , privacy policy and cookie policy , and that your continued use of the website is subject to these policies. Home Questions Tags Users Unanswered. Just was just looking at the various interest rates and noticed this: Z2 Dec 12 Phil H 2, 10 Hardly any interbank lending takes place at 6m nowadays.

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