Pricing And Trading Interest Rate Derivatives Darbyshire Pdf
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The IRS market is among the largest of all interest-rate derivative markets with annual notional outstanding amounts in excess of $1.0 trillion. It has been growing steadily, with the notional outstanding amount doubling between 2000 and 2004. In 2004 it represented 16% of U.S. fixed income trading.
An IBOR swap is a type of interest rate swap, or interest rate derivative, in which the floating leg is linked to a IBOR index. Ibor stands for the name of the index, the International Benchmark for Overnight Index Swaps- an interest rate swap benchmark index introduced in 2008 by the Basel Committee on Banking Supervision in response to the financial crisis. The Basel Committee developed the Ibor index by incorporating an index of Ibor rates traded in the primary market, the Gilts and U.S. Treasury bills. The underlying Ibor index is calculated and published by the BoE and is a daily index of exchange-rate-adjusted rates on the prime, discount and premium curves for three currencies: the yen, the euro and the U.S. dollar.
The swap benchmark is the basis for swap pricing on the market. Treasury bills (T-bills) are also used in some markets as a standard swap benchmark. Swap spread (or basis) is the difference between the swap rate and the overnight index swap rate, divided by 100. Swap spread is the price of a swap expressed as a percentage of an index-based floating leg (such as T-bills) or an Ibor rate. Swap spread is also called basis. All other terms are derived from these two.
In finance, the term IRS generally refers to an interest rate swap that is priced using the specified interest rate (SIR) in the reference currency. Unlike a standard IRS, the SIR is not frozen at the outset of the swap. Rather, the rate is calculated as of the date the swap becomes effective and is exchanged for the rate on the agreed days and at the agreed exchange rate. The IRS is denominated in the reference currency. A multi-currency IRS is a cross-currency IRS that is denominated in several different currencies. 827ec27edc