Key Issues in Interest Rate Derivatives Valuation (Q&A from the Webcast)

    Posted by Jun 15, 2023 5:05:20 PM / Richard Fedrick


    1. Given that IR is a major part of derivatives, how would you interpret the fact that we are currently at 2006-2008 levels?
    A. I don't think the two things are related.

    2.  If you have a 20-year swap, how are you going to get a 20-year repo rate when posted bonds?
    A. Any dealer will have a term repo curve. Likely constructed as the SOFR curve + basis.

    3.  Does the market assume that FX swaps are USD cash collateralized?
    A. In general yes. In (say) Eastern Europe 'no', it will be EUR.

    4. Will Europe follow the rest of the world in moving to a single-index system, and if so when do you think this will happen?
    A. Probably. But the ECB/regulators have been very vocal in insisting that there are no current plans.

    5.  XCCY/USD basis - do we (or should we) think of it as relative to SOFR or Fed Funds?
    A. SOFR. The clearing houses have made their decision.

    6.  Do FX swaps drive the price of cross-currency basis swaps, or vice versa?
    A. FX swaps are the liquid instrument out to 18 months, thereafter it's cross-currency swaps.

    Thank you to those attendees who submitted their questions.


    Related Courses

    Interest Rate Derivatives and Swaps

    Interest Rate Derivatives 2: Options

    Interest Rate Derivatives 3: Structuring


    Topics: interest rate, Derivatives

    Written by Richard Fedrick

    Richard specialises interest rate and FX, derivatives, exotics, structured products and risk management. He started his career at Morgan Stanley, and spent three years as a rates and FX structurer before moving to Deutsche Bank in London, where he joined a newly-formed team designing and selling structured products across Europe. In 1993 Richard joined General Re Financial Products, an AAA-rated derivatives boutique that rapidly became established as one of the world’s leading derivatives trading operations. At GRFP, Richard ran the structuring desk, before becoming Managing Director and global co-head of structuring and sales. He then joined Dresdner Kleinwort Wasserstein in 2002 before moving into executive education in 2004. Richard has a 1st Class degree in Physics from St John’s College, University of Oxford.

    Recent Posts

    Ask Teacher
    Ask the Teacher

    Follow Us

    Contact Us

    Recent Posts

    Wrong-Way Risk (Q&A from the Webinar)

    1. What are your thoughts on methods for default correlation estimation? When there are no direct estimates available, sometimes equity or CDS..

    May 9, 2024 12:35:39 PM / by Jon Gregory

    Monetising Convexity (Q&A from the Webinar)

    1. Is it fair to say that options actually have two types of convexity: one due to the payoff structure, working along the underlying’s price..

    Mar 13, 2024 4:38:11 PM / by Richard Fedrick