Discounting, LIBOR, CVA and funding [electronic resource] : interest rate and credit pricing /
Kenyon, C.author.
Stamm, R.author.
Providing the most up-to-date tools and techniques for pricing interest rate and credit products for the new financial world, this book discusses pricing and hedging, funding and regulation, and interpretation, as an essential resource for quantitatively minded practitioners and researchers in finance.
Description based upon print version of record.
Cover; Half-Title; Title; Copyright; Dedication; Contents; List of Tables; List of Figures; Preface; Acknowledgments; Disclaimer; 1 Back to the Basics; 1.1 Interest rates; 1.1.1 LIBOR; 1.1.2 Day count conventions; 1.1.3 Accrued interest and spot; 1.1.4 Zero rates and discounting; 1.2 Interest rate derivatives; 1.2.1 FRAs and swaps; 1.2.2 Caps, floors, and swaptions; 1.2.3 Basis swaps; 1.3 FX and cross-currency trades; 1.3.1 FX forwards; 1.3.2 Cross-currency swaps; 2 Bootstrapping of Zero Curves; 2.1 Money market rates; 2.2 Forward rates; 2.3 Swap rates; 2.4 Interpolation issues
3 A Plethora of Credit Spreads3.1 Introduction; 3.2 CDS spread; 3.2.1 Product description; 3.2.2 Bootstrapping hazard rates from CDS spreads; 3.2.3 Standard CDS contracts; 3.2.4 Floating recovery rates; 3.2.5 CDS spread risk; 3.3 Zero spread; 3.3.1 Zero spread risk; 3.4 I spread; 3.4.1 I spread risk; 3.5 Par asset swap spread; 3.5.1 Product description; 3.5.2 Inflation-linked asset swaps; 3.5.3 Implying par asset swap spreads in other currencies; 3.5.4 Bootstrapping hazard rates from asset swap spreads; 3.5.5 Par asset swap spread risk; 3.6 Risky floater spread
3.6.1 Risky floater spread risk3.7 Connections between spreads; 3.7.1 From bond prices to CDS spreads; 3.7.2 The asset swap - CDS basis; 4 Introduction to Basis Spreads; 4.1 Something is rotten in the state of pricing; 4.1.1 Forwards; 4.1.2 Basis swaps; 4.1.3 Overnight indexed swaps; 4.2 Origins; 4.2.1 Collateralization and fixings; 4.3 Modeling approaches; 4.3.1 Practicalities; 4.3.2 Simple approaches; 5 Local Discount Curves; 5.1 Basis swaps in one currency; 5.1.1 Standard tenor discount curve; 5.1.2 OIS discount curve; 5.2 Building the forward curve; 5.3 Example
5.4 Cross-currency basis swaps6 Global Discount Curve; 6.1 Curve construction; 6.2 Example; 6.3 Impact on hedge accounting; 7 Non-Linear Products; 7.1 Introduction; 7.2 Short rate; 7.2.1 FX analogy; 7.2.2 Discount + spread; 7.2.3 Extensions for smiles; 7.3 Tenor forward rate; 7.3.1 FX analogy; 7.3.2 Discount + spread; 7.4 Volatilities; 7.4.1 Cap and floor volatilities for non-standard tenors; 7.4.2 Swaption volatilities for non-standard tenors: first approach; 7.4.3 Swaption volatilities for non-standard tenors: new market approach; 8 CVA: Instrument Level; 8.1 Introduction; 8.1.1 Origins
8.1.2 Closeout8.2 Pricing by expectation; 8.2.1 CVA and DVA; 8.2.2 CVA, DVA, and FVA; 8.2.3 Critique; 8.3 Pricing by Hedging; 8.3.1 Feynman-Kac; 8.3.2 FVA; 8.3.3 CVA, DVA, and FVA; 8.3.4 Zero funding costs; 8.3.5 Critique; 8.4 Other Perspectives; 8.4.1 Conditions for trading; 8.4.2 P&L takeout; 9 CVA: Firm Level; 9.1 Introduction; 9.1.1 Regulation and interpretation; 9.1.2 Reports; 9.2 Balance sheet; 9.3 Asset-bank-counterparty model; 9.3.1 Intuition; 9.3.2 Effect of own-default on assets and liabilities; 9.3.3 ABC model; 9.3.4 Base case: all assets MtM, no collateral, no goodwill
9.3.5 Collateral
Includes bibliographical references and index.
Providing the most up-to-date tools and techniques for pricing interest rate and credit products for the new financial world, this book discusses pricing and hedging, funding and regulation, and interpretation, as an essential resource for quantitatively minded practitioners and researchers in finance.
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