Interest rate markets

Two curves, one price

The financial crisis multiplied the yield curves used to price interest rate derivatives, making traditional no arbitrage pricing no longer valid. By taking into account the basis adjustment bootstrapped from market basis swaps and using a foreign…

Surviving the liquidity squeeze

Excess liquidity in the euro funding markets halved at the beginning of July, causing Eonia to leap higher. The extent of the move surprised traders and caused problems for some participants. Christopher Whittall reports

Two curves, one price

The financial crisis has multiplied the yield curves used to price plain vanilla interest rate derivatives, making classic single-curve no-arbitrage relations and pricing formulas no longer valid. Marco Bianchetti shows that no-arbitrage can be recovered…

Dealing with funding on uncollateralised swaps

Many banks are now using their own cost of funding as a discount rate when pricing non-collateralised swaps trades. How are banks dealing with the difference in funding rates when quoting derivatives prices, and could this influence a client’s choice of…

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