Interest rate derivatives - Risk.net
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en-gbRisky caplet pricing with backward-looking ratesThe Hull-White model for short rates is extended to include compounded rates and credit risk https://www.risk.net/cutting-edge/banking/7861761/risky-caplet-pricing-with-backward-looking-rates
https://www.risk.net/cutting-edge/banking/7861761/risky-caplet-pricing-with-backward-looking-ratesTue, 03 Aug 2021 04:30:00 +0100The curious case of backward short ratesA discretisation approach for both backward- and forward-looking interest rate derivatives is proposed https://www.risk.net/cutting-edge/banking/7859811/the-curious-case-of-backward-short-rates
https://www.risk.net/cutting-edge/banking/7859811/the-curious-case-of-backward-short-ratesMon, 26 Jul 2021 04:30:00 +0100Cross-currency swaps will use RFRs on both legs, says JP execDespite slow start, all-RFR swaps will become the market standard within a year, according to Tom Prickett https://www.risk.net/derivatives/interest-rate-derivatives/7722281/cross-currency-swaps-will-move-to-rfrs-on-both-legs-says-jp-exec
https://www.risk.net/derivatives/interest-rate-derivatives/7722281/cross-currency-swaps-will-move-to-rfrs-on-both-legs-says-jp-execThu, 10 Dec 2020 14:37:02 +0000June mid-month auctions – Coupon and yield trendsAs Treasury issuance amounts set new records, coupons at the front end of the curve have marched downward, while back-end coupons have lagged. Yield spreads across each popular measure show a consistent steepening of the curve through the first half of 2020 https://www.risk.net/derivatives/interest-rate-derivatives/7558231/june-mid-month-auctions-coupon-and-yield-trends
https://www.risk.net/derivatives/interest-rate-derivatives/7558231/june-mid-month-auctions-coupon-and-yield-trendsFri, 05 Jun 2020 00:00:01 +0100CME SOFR Futures and SOFR Volatility
https://www.risk.net/derivatives/interest-rate-derivatives/6770506/cme-sofr-futures-and-sofr-volatility
https://www.risk.net/derivatives/interest-rate-derivatives/6770506/cme-sofr-futures-and-sofr-volatilityThu, 27 Jun 2019 14:48:59 +0100Forging a third way: Bringing efficiencies and standardisation to the non-cleared swaps marketA survey conducted by Risk in association with LCH SwapAgent highlighted concerns about declining liquidity in non-cleared interest rate derivatives, with market participants calling for greater opportunities for standardisation and optimisation https://www.risk.net/derivatives/interest-rate-derivatives/5340936/forging-a-third-way-bringing-efficiencies-and-standardisation-to-the-non-cleared-swaps-market
https://www.risk.net/derivatives/interest-rate-derivatives/5340936/forging-a-third-way-bringing-efficiencies-and-standardisation-to-the-non-cleared-swaps-marketMon, 09 Oct 2017 09:00:00 +0100LCH set to clear 50-year Sonia swapsClearing house says it will clear long-dated swaps linked to the sterling overnight rate by end of 2017 https://www.risk.net/derivatives/interest-rate-derivatives/5337946/lch-set-to-clear-50-year-sonia-swaps
https://www.risk.net/derivatives/interest-rate-derivatives/5337946/lch-set-to-clear-50-year-sonia-swapsFri, 29 Sep 2017 12:46:10 +0100ECB backed to fix floundering euro swaps reformSwiss, UK and US progress leaves euro swaps market playing catch-up in rates reform https://www.risk.net/derivatives/interest-rate-derivatives/5334686/ecb-backed-to-fix-floundering-euro-swaps-reform
https://www.risk.net/derivatives/interest-rate-derivatives/5334686/ecb-backed-to-fix-floundering-euro-swaps-reformFri, 22 Sep 2017 07:32:35 +0100Banks calm on Eurex-LCH basis volatilityPast basis blowouts prepared banks for movements, say traders https://www.risk.net/derivatives/interest-rate-derivatives/4707451/banks-calm-on-eurex-lch-basis-volatility
https://www.risk.net/derivatives/interest-rate-derivatives/4707451/banks-calm-on-eurex-lch-basis-volatilityMon, 10 Apr 2017 05:00:00 +0100Mixing SABR models for negative ratesAntonov, Konikov and Spector use an exact formula for the normal free boundary SABR to construct an arbitrage-free mixed SABR model https://www.risk.net/derivatives/interest-rate-derivatives/4717846/mixing-sabr-models-for-negative-rates
https://www.risk.net/derivatives/interest-rate-derivatives/4717846/mixing-sabr-models-for-negative-ratesFri, 07 Apr 2017 14:32:28 +0100Swiss rate reform set to trigger swap value changeTois discounting rate set to be replaced in 2018 by Saron, which is 20bp lower https://www.risk.net/derivatives/interest-rate-derivatives/3912331/swiss-rate-reform-set-to-trigger-swap-value-change
https://www.risk.net/derivatives/interest-rate-derivatives/3912331/swiss-rate-reform-set-to-trigger-swap-value-changeMon, 13 Feb 2017 06:00:00 +0000OTC market resisting swap futures threatSwap futures yet to break out, but backers see margin, accounting and Citadel as tailwinds https://www.risk.net/derivatives/interest-rate-derivatives/2478949/otc-market-resisting-swap-futures-threat
https://www.risk.net/derivatives/interest-rate-derivatives/2478949/otc-market-resisting-swap-futures-threatMon, 05 Dec 2016 08:33:00 +0000Swap 4175: how a hedged loan became a €600m disputeCity of Linz v Bawag case underlines risks in municipal derivatives https://www.risk.net/derivatives/interest-rate-derivatives/2474984/swap-4175-how-a-hedged-loan-became-a-eu600m-dispute
https://www.risk.net/derivatives/interest-rate-derivatives/2474984/swap-4175-how-a-hedged-loan-became-a-eu600m-disputeWed, 26 Oct 2016 07:05:00 +0100BoE plans could force change to Libor-Sonia swap paymentsReformed Sonia proposals may see floating-leg settlements delayed https://www.risk.net/derivatives/interest-rate-derivatives/2474665/boe-plans-could-force-change-libor-sonia-swap
https://www.risk.net/derivatives/interest-rate-derivatives/2474665/boe-plans-could-force-change-libor-sonia-swapThu, 20 Oct 2016 00:10:00 +0100Flylets and invariant risk metricsKharen Musaelian, Santhanam Nagarajan and Dario Villani show how to build robust risk metrics for bond returns based on a global structure in the form of principal components and a novel quasi-local representation for the residuals https://www.risk.net/derivatives/interest-rate-derivatives/2472874/flylets-and-invariant-risk-metrics
https://www.risk.net/derivatives/interest-rate-derivatives/2472874/flylets-and-invariant-risk-metricsTue, 04 Oct 2016 11:07:00 +0100Negative Euribor erodes securitisation profitsImplicit floors in notes leave originators facing cost of negative rates on hundreds of tranches https://www.risk.net/derivatives/interest-rate-derivatives/2470877/negative-euribor-erodes-securitisation-profits
https://www.risk.net/derivatives/interest-rate-derivatives/2470877/negative-euribor-erodes-securitisation-profitsFri, 16 Sep 2016 00:05:00 +0100Interest rate models enhanced with local volatilityIn this paper, Lingling Cao and Pierre Henry-Labordère complement generic interest rate models with local volatility. They derive an exact Dupire-like formula for the local volatility. An efficient calibration scheme is then achieved with the particle method as introduced in Guyon & Henry-Labordère (2012) https://www.risk.net/derivatives/interest-rate-derivatives/2469216/interest-rate-models-enhanced-with-local-volatility
https://www.risk.net/derivatives/interest-rate-derivatives/2469216/interest-rate-models-enhanced-with-local-volatilityTue, 30 Aug 2016 14:34:00 +0100Opened interest: foreign firms eye China's rate swap marketThe opening of the interbank bond market to foreign investors should be a boon for onshore interest rate derivatives markets. But participants say there are a number of hurdles to clear before it can take off https://www.risk.net/derivatives/interest-rate-derivatives/2465890/opened-interest-foreign-firms-eye-chinas-rate-swap-market
https://www.risk.net/derivatives/interest-rate-derivatives/2465890/opened-interest-foreign-firms-eye-chinas-rate-swap-marketTue, 26 Jul 2016 00:05:00 +0100LCH-JSCC basis to boost XVA acceptance in Japan Prices now "can't be explained without reference to XVAs", says Nomura credit head https://www.risk.net/derivatives/interest-rate-derivatives/2460940/lch-jscc-basis-boost-xva-acceptance-japan
https://www.risk.net/derivatives/interest-rate-derivatives/2460940/lch-jscc-basis-boost-xva-acceptance-japanThu, 09 Jun 2016 08:21:00 +0100Mortgage investors grapple with negative swap spreadsCollapse of US swap rate creates problems for valuation models https://www.risk.net/derivatives/interest-rate-derivatives/2459675/mortgage-investors-grapple-negative-swap-spreads
https://www.risk.net/derivatives/interest-rate-derivatives/2459675/mortgage-investors-grapple-negative-swap-spreadsFri, 27 May 2016 13:13:00 +0100Nordic clearing members eliminate Skr288 billion IRS notionalNasdaq Clearing’s first compression run to be continued twice a year https://www.risk.net/derivatives/interest-rate-derivatives/2454827/nordic-clearing-members-eliminate-skr288-billion-irs
https://www.risk.net/derivatives/interest-rate-derivatives/2454827/nordic-clearing-members-eliminate-skr288-billion-irsMon, 18 Apr 2016 08:30:00 +0100Indian rate options underlyings insufficient, say tradersLack of long-term reference points could hold back proposed market https://www.risk.net/derivatives/2450565/indian-rate-options-underlyings-insufficient-say-traders
https://www.risk.net/derivatives/2450565/indian-rate-options-underlyings-insufficient-say-tradersFri, 18 Mar 2016 00:05:00 +0000Dealer algos strike back in swaps market showdownAuto-quoting starting to take root as incumbents try to keep pace with Citadel https://www.risk.net/derivatives/interest-rate-derivatives/2446836/dealer-algos-strike-back-swaps-market-showdown
https://www.risk.net/derivatives/interest-rate-derivatives/2446836/dealer-algos-strike-back-swaps-market-showdownWed, 24 Feb 2016 07:15:00 +0000Hungary central bank action ‘distorting’ swaps curveThe Central Bank of Hungary has offered up 1 trillion forint notional of cheap interest rate swaps, driving down bids for receiver swaps and government bond yields, say dealers https://www.risk.net/derivatives/interest-rate-derivatives/2447519/hungary-central-bank-action-distorting-swaps-curve
https://www.risk.net/derivatives/interest-rate-derivatives/2447519/hungary-central-bank-action-distorting-swaps-curveFri, 19 Feb 2016 06:00:00 +0000Japan’s Quick takes on MarkitWire with domestic affirmation serviceJapanese language service targets domestic regional banks https://www.risk.net/derivatives/interest-rate-derivatives/2446878/japans-quick-takes-markitwire-domestic-affirmation
https://www.risk.net/derivatives/interest-rate-derivatives/2446878/japans-quick-takes-markitwire-domestic-affirmationSun, 14 Feb 2016 23:00:00 +0000What credit auction friction says about the OTC marketBenefits of risk bifurcation threatened by collateral conflicts https://www.risk.net/derivatives/interest-rate-derivatives/2445814/what-credit-auction-friction-says-about-otc-market
https://www.risk.net/derivatives/interest-rate-derivatives/2445814/what-credit-auction-friction-says-about-otc-marketWed, 10 Feb 2016 04:07:00 +0000Non-parametric local volatility formula for interest rate swaptionsThe volatility smile in the interest rate derivative models has long been an important topic in theory and practice. With a growing divergence of monetary policy cycles between the US and Europe, there is a stronger need for robust smile models that would allow for pricing illiquid, out-of-the-money and exotic interest rate products. Dariusz Gatarek, Juliusz Jabłecki and Dong Qu propose a simple Dupire-like local volatility formula that works for swaptions. Working in a Cheyette-type quasi-Gaussian framework, they link the resulting swap rate local volatility to the dynamics of two state variables parameterising the entire evolution of the interest rate curve, which allows for fast and accurate calibration https://www.risk.net/derivatives/interest-rate-derivatives/2444629/non-parametric-local-volatility-formula-for-interest-rate-swaptions
https://www.risk.net/derivatives/interest-rate-derivatives/2444629/non-parametric-local-volatility-formula-for-interest-rate-swaptionsTue, 02 Feb 2016 16:02:00 +0000Corporates warn of legal risk in Euribor transitionProposed new methodology behind benchmark constitutes a "fundamental" change, ACT argues https://www.risk.net/derivatives/2444407/corporates-warn-of-legal-risk-in-euribor-transition
https://www.risk.net/derivatives/2444407/corporates-warn-of-legal-risk-in-euribor-transitionTue, 02 Feb 2016 13:54:00 +0000Slow start to US dollar rates clearing in JapanDealers cite limited demand to clear foreign currency interest rate swaps at JSCC as reason for slow volumes, with two trades cleared in four months https://www.risk.net/derivatives/interest-rate-derivatives/2444277/slow-start-us-dollar-rates-clearing-japan
https://www.risk.net/derivatives/interest-rate-derivatives/2444277/slow-start-us-dollar-rates-clearing-japanMon, 01 Feb 2016 00:30:00 +0000Eonia ‘almost meaningless’, says Eurex Volumes in Europe’s unsecured overnight lending markets are now frequently too small to generate a meaningful Eonia fixing, Eurex argues. The debate is significant in the context of the post-Libor search for an alternative fixing that could serve as the reference rate for trillions of euros worth of rates contracts – a debate Eurex has a strong interest in https://www.risk.net/derivatives/interest-rate-derivatives/2443686/eonia-almost-meaningless-says-eurex
https://www.risk.net/derivatives/interest-rate-derivatives/2443686/eonia-almost-meaningless-says-eurexThu, 28 Jan 2016 09:05:00 +0000JSE swap futures off to a slow startSeven weeks after their launch, South Africa's interest rate swap futures contracts are yet to trade. Dealers say they are struggling with CVA calculations and internal approval processes https://www.risk.net/derivatives/interest-rate-derivatives/2431788/jse-swap-futures-slow-start
https://www.risk.net/derivatives/interest-rate-derivatives/2431788/jse-swap-futures-slow-startMon, 26 Oct 2015 08:00:00 +0000LDI funds cool on zero-coupon swaps as price jumpsPension funds say the cost of their traditional zero-coupon interest rate swaps surged six-fold this year, as the return of interest rate volatility exposed hidden basis risks in dealers’ books https://www.risk.net/derivatives/interest-rate-derivatives/2427731/ldi-funds-cool-zero-coupon-swaps-price-jumps
https://www.risk.net/derivatives/interest-rate-derivatives/2427731/ldi-funds-cool-zero-coupon-swaps-price-jumpsFri, 09 Oct 2015 00:00:00 +0100Client list reveals HFT dominance on BrokerTecBarclays and JP Morgan are the only banks on a list of top interdealer firms for US Treasuries https://www.risk.net/derivatives/interest-rate-derivatives/2426923/client-list-reveals-hft-dominance-on-brokertec
https://www.risk.net/derivatives/interest-rate-derivatives/2426923/client-list-reveals-hft-dominance-on-brokertecWed, 23 Sep 2015 00:17:00 +0100Competition is saving end-users from euro swaps price hikesSwap dealers are often described as a cartel; right now, they are not acting like one https://www.risk.net/derivatives/interest-rate-derivatives/2424766/competition-is-saving-end-users-from-euro-swaps-price-hikes
https://www.risk.net/derivatives/interest-rate-derivatives/2424766/competition-is-saving-end-users-from-euro-swaps-price-hikesFri, 11 Sep 2015 09:30:00 +0100Cutting Edge introduction: Sticky SABRNegative interest rates are tricky to model accurately, but quants at Numerix have developed a technique to better capture their dynamics, without the hassle involved in using shifted models https://www.risk.net/derivatives/interest-rate-derivatives/2424849/cutting-edge-introduction-sticky-sabr
https://www.risk.net/derivatives/interest-rate-derivatives/2424849/cutting-edge-introduction-sticky-sabrThu, 10 Sep 2015 12:12:00 +0100Hidden price pressures grow in euro swap marketUsers of euro interest rate swaps should expect bid/offer spreads to widen, dealers are warning –
a consequence of shrinking liquidity in the markets banks use to hedge, such as the Bund future. Fierce competition and a drive to internalise more flow has shielded clients so far https://www.risk.net/derivatives/interest-rate-derivatives/2424383/hidden-price-pressures-grow-in-euro-swap-market
https://www.risk.net/derivatives/interest-rate-derivatives/2424383/hidden-price-pressures-grow-in-euro-swap-marketTue, 08 Sep 2015 04:00:00 +0100CME guaranty fund cut could lure new clearing membersRegional banks and prop shops are eyeing direct membership, but the lower minimum guaranty fund contribution does little for existing FCMs https://www.risk.net/infrastructure/clearing/2424369/cme-guaranty-fund-cut-could-lure-new-clearing-members
https://www.risk.net/infrastructure/clearing/2424369/cme-guaranty-fund-cut-could-lure-new-clearing-membersThu, 03 Sep 2015 09:38:00 +0100The free boundary SABR: natural extension to negative ratesIn the current low interest rate environment, extending option models to negative rates has become an important issue. Here, Alexandre Antonov, Michael Konikov and Michael Spector extend the widely used SABR model to the free boundary SABR model that can handle negative rates. They derive an exact option pricing formula for the zero correlation case, and a suitable approximation for the general case. The analytical results are successfully compared with the Monte Carlo simulations https://www.risk.net/derivatives/interest-rate-derivatives/2423287/the-free-boundary-sabr-natural-extension-to-negative-rates
https://www.risk.net/derivatives/interest-rate-derivatives/2423287/the-free-boundary-sabr-natural-extension-to-negative-ratesTue, 25 Aug 2015 15:16:00 +0100CCPs confront cleared swap basis threatIn theory, a price difference could emerge for any derivative that is cleared at two or more clearing houses – as recently happened for US dollar swaps at CME and LCH.Clearnet. From Japan to Mexico, other clearers explain how they are trying to avoid it https://www.risk.net/derivatives/interest-rate-derivatives/2416975/ccps-confront-cleared-swap-basis-threat
https://www.risk.net/derivatives/interest-rate-derivatives/2416975/ccps-confront-cleared-swap-basis-threatMon, 10 Aug 2015 04:00:00 +0100CCP basis market takes off – but will buy-side join in?Over the past three months, it has been more expensive to trade a pay-fixed US dollar swap that will clear at CME than at rival LCH.Clearnet, resulting in a surge in volumes and volatility for so-called basis trades. Now, banks are trying to get buy-side firms involved https://www.risk.net/derivatives/interest-rate-derivatives/2420724/ccp-basis-market-takes-off-but-will-buy-side-join-in
https://www.risk.net/derivatives/interest-rate-derivatives/2420724/ccp-basis-market-takes-off-but-will-buy-side-join-inFri, 07 Aug 2015 06:41:00 +0100Banks and pension funds fall out over bond CSAsFor so long the darling of dealer derivatives desks, pension funds’ refusal to post cash collateral means banks are introducing new charges, and some are rethinking the relationship altogether https://www.risk.net/derivatives/interest-rate-derivatives/2411660/banks-and-pension-funds-fall-out-over-bond-csas
https://www.risk.net/derivatives/interest-rate-derivatives/2411660/banks-and-pension-funds-fall-out-over-bond-csasThu, 11 Jun 2015 06:20:00 +0100CME-LCH basis affecting choice of venue, say buy-sidersPrice difference is now "material", warns Pimco's De Leon https://www.risk.net/derivatives/interest-rate-derivatives/2409396/cme-lch-basis-affecting-choice-of-venue-say-buy-siders
https://www.risk.net/derivatives/interest-rate-derivatives/2409396/cme-lch-basis-affecting-choice-of-venue-say-buy-sidersThu, 21 May 2015 07:16:00 +0100Bank swap books suffer as CME-LCH basis explodesA 13-fold increase in the relative cost of clearing interest rate swaps at CME instead of LCH.Clearnet is estimated to have cost dealers $20 million each. It may also reduce client flows into CME https://www.risk.net/derivatives/interest-rate-derivatives/2408764/bank-swap-books-suffer-cme-lch-basis-explodes
https://www.risk.net/derivatives/interest-rate-derivatives/2408764/bank-swap-books-suffer-cme-lch-basis-explodesFri, 15 May 2015 12:46:00 +0100CME has “no plans” to corner invoice spread marketDealers still worried exchange has motive and means to create monopoly https://www.risk.net/derivatives/interest-rate-derivatives/2402367/cme-has-no-plans-corner-invoice-spread-market
https://www.risk.net/derivatives/interest-rate-derivatives/2402367/cme-has-no-plans-corner-invoice-spread-marketMon, 06 Apr 2015 00:05:00 +0100Profile: Citadel's Hamill on the fight for swaps market shareThe arrival of swap execution facilities was supposed to herald a new era of swap market competition. Citadel Securities was the first new entrant to take the challenge, and its fixed-income execution head talks here about how the firm is trying to make its mark https://www.risk.net/derivatives/interest-rate-derivatives/2400949/profile-citadels-hamill-fight-swaps-market-share
https://www.risk.net/derivatives/interest-rate-derivatives/2400949/profile-citadels-hamill-fight-swaps-market-shareMon, 30 Mar 2015 06:00:00 +0100Goodbye Sonia flat: banks rethink swaps with bond collateralBarclays, Citi, HSBC and Lloyds Bank are among dealers now adding an extra spread when discounting bond-collateralised swaps – which eats into the profits pension funds can see. Funds do not like the change but privately agree banks have a point https://www.risk.net/derivatives/interest-rate-derivatives/2398048/goodbye-sonia-flat-banks-rethink-swaps-bond
https://www.risk.net/derivatives/interest-rate-derivatives/2398048/goodbye-sonia-flat-banks-rethink-swaps-bondThu, 05 Mar 2015 09:24:00 +0000Interest rate derivatives house of the year: Deutsche BankElectronic trading, compression, swap book consolidation – efficiency was the watchword for Deutsche Bank’s rates business last year, but it supported a roaring trade in cross-currency swaps https://www.risk.net/derivatives/interest-rate-derivatives/2387346/interest-rate-derivatives-house-year-deutsche-bank
https://www.risk.net/derivatives/interest-rate-derivatives/2387346/interest-rate-derivatives-house-year-deutsche-bankMon, 12 Jan 2015 16:16:00 +0000Short-rate joint-measure modelsJohn Hull, Alexander Sokol and Alan White introduce a new concept, called local price of risk, to construct and calibrate a joint-measure model describing the evolution of interest rates under both the real-world and risk-neutral measures. This can be used for a variety of risk management applications https://www.risk.net/derivatives/interest-rate-derivatives/2372197/short-rate-joint-measure-models
https://www.risk.net/derivatives/interest-rate-derivatives/2372197/short-rate-joint-measure-modelsFri, 26 Sep 2014 13:14:00 +0100CME swaptions clearing ready for November launchSwaptions clearing members at CME must submit daily valuation data to the CCP or face hefty fines https://www.risk.net/derivatives/interest-rate-derivatives/2370963/cme-swaptions-clearing-ready-november-launch
https://www.risk.net/derivatives/interest-rate-derivatives/2370963/cme-swaptions-clearing-ready-november-launchMon, 22 Sep 2014 10:14:00 +0100Forward-starting swap volumes fail to surge, says IsdaData refutes claims that market is using forward-starting trades to avoid Sefs, says industry body https://www.risk.net/derivatives/interest-rate-derivatives/2364307/forward-starting-swap-volumes-fail-surge-says-isda
https://www.risk.net/derivatives/interest-rate-derivatives/2364307/forward-starting-swap-volumes-fail-surge-says-isdaWed, 10 Sep 2014 13:59:31 +0100