Pricing And Trading Interest Rate Derivatives A Practical Guide To Swaps Download

"This is an invaluable resource that has helped me launch my career as an interest rate swap trader. It has been especially useful for bridging the gap between those too theoretical fixed income books and those light-on-content practical ones. Darbyshire includes material that simply doesn't exist elsewhere. The pedagogical examples and concise structure make this easily digestible and highly effective."

The most professional and industry relatable text currently available for linear interest rate derivatives. This revised edition markedly expands the first edition released in 2016, with revised content based on multiple recommendations from active portfolio managers.

Download 🔥 https://ssurll.com/2y5SOW 🔥

Written by a practicing derivatives portfolio manager with over twelve years of fixed income trading experience, this book focuses on core trading concepts; pricing, curve building (single and multi-currency), risk, credit and CSAs, regulations, VaR and PCA, volatility, cross-gamma, trade strategy analysis and market moving influences.

Almost everything included here is compulsory knowledge for a modern, successful, swaps trader or interest rate risk portfolio manager. Certainly this book sets the benchmark for the level of expertise that swaps traders should strive for, and the style is aimed at the novice and professional alike.

The book's focus is interest rate swaps and cross-currency swaps. Topics are presented from that perspective, outlining the importance of regulations in an IRD capacity, with volatility and swaptions taught from a practical point of view rather than an overly cumbersome academic one.

There is a newer edition of this book available (3rd Edition: 7 August 2022) !!Written by a practicing derivatives portfolio manager with over fifteen years of fixed income trading experience, this book focuses on core trading concepts; pricing, curve building (single and multi-currency), risk, credit and CSAs, regulations, VaR and PCA, volatility, cross-gamma, trade strategy analysis and market moving influences.

Written by a practicing derivatives portfolio manager with over fifteen years of fixed income trading experience, this book focuses on core trading concepts; pricing, curve building (single and multi-currency), risk, credit and CSAs, regulations, VaR and PCA, volatility, cross-gamma, trade strategy analysis and market moving influences.

The book's focus is interest rate swaps and cross-currency swaps, updated for a risk free rate (RFR, such as SOFR and ESTR) framework as opposed to LIBOR. Topics are presented from that perspective, outlining the importance of regulations in an IRD capacity, with volatility and swaptions taught from a practical point of view rather than an overly cumbersome academic one.

In finance, an interest rate swap (IRS) is an interest rate derivative (IRD). It involves exchange of interest rates between two parties. In particular it is a "linear" IRD and one of the most liquid, benchmark products. It has associations with forward rate agreements (FRAs), and with zero coupon swaps (ZCSs).

In its December 2014 statistics release, the Bank for International Settlements reported that interest rate swaps were the largest component of the global OTC derivative market, representing 60%, with the notional amount outstanding in OTC interest rate swaps of $381 trillion, and the gross market value of $14 trillion.[1]

As OTC instruments, interest rate swaps (IRSs) can be customised in a number of ways and can be structured to meet the specific needs of the counterparties. For example: payment dates could be irregular, the notional of the swap could be amortized over time, reset dates (or fixing dates) of the floating rate could be irregular, mandatory break clauses may be inserted into the contract, etc. A common form of customisation is often present in new issue swaps where the fixed leg cashflows are designed to replicate those cashflows received as the coupons on a purchased bond. The interbank market, however, only has a few standardised types.

Float leg versus float leg swaps are much more common. These are typically termed (single currency) basis swaps (SBSs). The legs on SBSs will necessarily be different interest indexes, such as 1M, LIBOR, 3M LIBOR, 6M LIBOR, SONIA, etc. The pricing of these swaps requires a spread often quoted in basis points to be added to one of the floating legs in order to satisfy value equivalence.

Interest rate swaps are also used speculatively by hedge funds or other investors who expect a change in interest rates or the relationships between them. Traditionally, fixed income investors who expected rates to fall would purchase cash bonds, whose value increased as rates fell. Today, investors with a similar view could enter a floating-for-fixed interest rate swap; as rates fall, investors would pay a lower floating rate in exchange for the same fixed rate.

Interest rate swaps are also popular for the arbitrage opportunities they provide. Varying levels of creditworthiness means that there is often a positive quality spread differential that allows both parties to benefit from an interest rate swap.

Post crisis, to accommodate credit risk, the now-standard pricing approach is the multi-curve framework where forecast -IBOR rates and discount factors exhibit disparity. Note that the economic pricing principle is unchanged: leg values are still identical at initiation. See Financial economics Derivative pricing for further context. Here, overnight index swap (OIS) rates are typically used to derive discount factors, since that index is the standard inclusion on Credit Support Annexes (CSAs) to determine the rate of interest payable on collateral for IRS contracts. As regards the rates forecast, since the basis spread between LIBOR rates of different maturities widened during the crisis, forecast curves are generally constructed for each LIBOR tenor used in floating rate derivative legs.[4]

Interest rate swaps expose users to many different types of financial risk.[2] Predominantly they expose the user to market risks and specifically interest rate risk. The value of an interest rate swap will change as market interest rates rise and fall. In market terminology this is often referred to as delta risk. Interest rate swaps also exhibit gamma risk whereby their delta risk increases or decreases as market interest rates fluctuate. (See Greeks (finance), Value at risk Computation methods, Value at risk VaR risk management.)

Credit and funding risks still exist for collateralised trades but to a much lesser extent. Regardless, due to regulations set out in the Basel III Regulatory Frameworks, trading interest rate derivatives commands a capital usage. The consequence of this is that, dependent upon their specific nature, interest rate swaps might command more capital usage, and this can deviate with market movements. Thus capital risks are another concern for users.

Reputation risks also exist. The mis-selling of swaps, over-exposure of municipalities to derivative contracts, and IBOR manipulation are examples of high-profile cases where trading interest rate swaps has led to a loss of reputation and fines by regulators.

Hedging interest rate swaps can be complicated and relies on numerical processes of well designed risk models to suggest reliable benchmark trades that mitigate all market risks; although, see the discussion above re hedging in a multi-curve environment. The other, aforementioned risks must be hedged using other systematic processes. 17dc91bb1f