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I am wonderring if that could ever make sense:
I know implied fwd rates can become negative but buying a swaption with negative strikes means one wants to enter a swap with negative coupon.
Could this make sense for short term swaps?
And what about long term swaps?
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jungle
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| Chief Rhythm OfficerCSD LLC |
| Total Posts: 3162 |
| Joined: Jul 2004 |
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| Not sure what you mean by "make sense", but CHF 2y IRS has traded negative (or has been quoted negative - I don't know whether volume went through at those levels) and options on Schatz futures have traded with strikes implying negative yields. |
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| I don't see why you can't have negative swap rates and, thus, negative swaption strikes. |
Insofar as I may be heard by anything, which may or may not care what I say, I ask, if it matters, that you be forgiven for anything you may have done or failed to do which requires forgiveness... |
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Thanks for the replies.
By "make sense" I mean "economical sense".
I can see how bonds or short term deposits can have negative yields.
But my point is: Say I go long a 5x10 receiver swaption, with a negative strike.
That implicitely means I expect the 10y forward swap rate to be negative (and hence all forward libors well). I am just wondering whether it makes economical sense go long that option.
CHF, may be fly-to-quality, but even you say you are not sure it actually traded.
But what about long term rates for EUR or USD? Would there be a EUR swap market at all with negative 10y or 20y rates? |
Keep your mind open, but not so open that your brain falls out |
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| I would say that anything is possible at this point... CHF OIS curve is consistently negative (and been trading there for a while) all the way out to 5y. Similar for DKK OIS. Sure, negative LIBOR is a somewhat different kettle of fish, but I don't see why it can't happen. Given that, I don't think it's such a stretch to imagine negative rates in various fwds etc. Obviously, given risk premium, it gets less likely as you go further out, but, again, why not? And I don't see why that would mean the death of the swap mkt, personally... |
Insofar as I may be heard by anything, which may or may not care what I say, I ask, if it matters, that you be forgiven for anything you may have done or failed to do which requires forgiveness... |
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mtsm
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Why do you want all forwards negative? you only need the forward curve to be partially negative, no?
In any case I too think it makes sense even if only for 'what if' analysis.
One question that I have and have had in the past is what skew model I should use when rates and/or strikes can go negative?
Any thoughts please?
Thanks,
mtsm
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mib
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| I think 0 strike receiver swaptions traded quite a few times in EUR in different tenors and maturities, at significantly non-zero premiums. It looks like some trading desks see them as a model hedge, ie the give them very concentrated exposure to their receiver skew model parameter, at low premium. |
Head of Mortality Management, Capital Structure Demolition LLC |
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| Par calls in Euribor/Eurodollar and now even short sterling have been trading quite actively. |
Insofar as I may be heard by anything, which may or may not care what I say, I ask, if it matters, that you be forgiven for anything you may have done or failed to do which requires forgiveness... |
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| Well, there we go... It was bound to happen and today is the day. 100.125 calls in Dec12 Euribor traded this morning at 0.5. That's a genuine honest-to-god negative strike option right there. |
Insofar as I may be heard by anything, which may or may not care what I say, I ask, if it matters, that you be forgiven for anything you may have done or failed to do which requires forgiveness... |
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cabron
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| snore ... an option on a rigged rate. you find that exciting ? seriously ? olympic archery .. now that's what's got my attention this am. |
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FDAXHunter
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| Can you name one interest rate that isn't rigged at the moment? |
Salman Pushdie |
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cabron
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| One for the next pub quiz. What's the answer btw ? |
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BTPS? Just kidding...
Personally, I find that "rigged" and "manipulated" are terms that get rather unfortunately abused. |
Insofar as I may be heard by anything, which may or may not care what I say, I ask, if it matters, that you be forgiven for anything you may have done or failed to do which requires forgiveness... |
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