Section 2 - R9 - Swaps, Fwds and Futures Flashcards
Interest Rate Swap (Types)
(Fixed-Floating) = ↑ Duration
(Floating - Fixed) = ↓ Duration
Interest Rate PMT Example (6 mo)
Pay Floating = [Float(180/360)Notional]
Pay Fixed = [Fixed(180/360)Notional]
Number of Swap (Formula)
Ns = [(Dt-Dp)/Dswap]*MV Portfolio
Ns = # Swap
Dt = Duration Target
Dswap = Duration Swap
MVP = Market Value Portfolio
Number of Swap (Formula)
Ns = [(Dt-Dp)/Dswap]*MV Portfolio
Ns = # Swap
Dt = Duration Target
Dswap = Duration Swap
MVP = Market Value Portfolio
Forwards (Characteristics)
- ETF Traded
- Standard
- Cash-settled
Futures Payoff (Formula)
Long Fwd Payoff = [(Rm-Rk)NA(Days/360)] for
Long Forward Gain (Formula)
If Rk (antes) > Rm (depois), Gain is the sum of
(i) [(Rm-Rk)NA(Days/360)]
(ii) Deposit Interest = [RmNA(Days/360)]
Fixed Income Future (Description)
Future contract where the underlying asset is a bond
Fixed Income Long & Short (Description)
Long FI Future = Receives the Bond
Short FI Future = Delivers Bond
Rates & CTD Duration (Relationship)
↑ Rates = CTD Duration ↑
↓ Rates = CTD Duration ↓
CTD Bond (Concept)
- Lowest coupon
- Long maturity
- Long duration
= Tudo de ruim
Hedge Ratio (Concept)
Nf = (Dt-Dp)/Df, onde
Df = Duration CTD / Conversion Factor
How to know which bond is CTD?
R.: Trader wants to minimize loss of the delivery, which is
Maximize = (Amount Received - Amount Paid)
Amount Received = [(F0 Settlement)/100 * CF]
Amount Paid = Cost of Acquiring = Mkt Price + Accrued Interest
Cross Currency Swap (Description Example)
- Company A needs USD but only can borrow in BRL
- Company A: Borrows in BRL + Enter in a Long USD Swap
- Company A pays Libor to US dealer
- US Dealer pays CDI to Company A
- Both exchange the notionals @ expiration
Cross Currency Swap: Receive the Basis (Concept)
Swap Dealer will underpay the CDI to BR Company buying the swap
