blah, i dont remember. i thought they extended a a fixed rate long, and expected IR to rise, so they swapped into a pay fixed receive float, and now they want to get out so i put receive fixed pay float, eiither way looks like i;m wrong
jimmylegs Wrote: ------------------------------------------------------- > oskigo Wrote: > -------------------------------------------------- > ----- > > i thought it was sell payee swapation because > that > > would cancel out the trade. > > Isn’t that the same as entering into a payer > swaption? yeah that’s why i was confused both were options.
rohufish Wrote: ------------------------------------------------------- > s23dino Wrote: > -------------------------------------------------- > ----- > > ^^^ that is complete cr@p, all mbs are > > callable…? > > > US mortgages, by law, include a prepayment option > for the borrower > > the way i reason it, it promotes labor flexibility > in the economy, therefore the law… > > other countries are not the same - india for > example, you always have 2% penalty Yes I agree mbs have a prepayment option but that is not the same as being callable. The prepayment option is prepayment risk. And I thought contingent claim risk was for callable/putable. Now if all mbs are callable then yes it makes sense but i never read that anywhere.
But keep in mind - if you sell an option, you’re exposing yourself to downside risk. They swapped into receive floating to take advantage of falling interest, but wanted to PROTECT against the possibility of rates rising. Buying a payer swaption was the only way to protect against a rise, while still maintaining the upside if the rates fall as expected.
s23dino Wrote: ------------------------------------------------------- > Yes I agree mbs have a prepayment option but that > is not the same as being callable. The prepayment > option is prepayment risk. And I thought > contingent claim risk was for callable/putable. > Now if all mbs are callable then yes it makes > sense but i never read that anywhere. that was my logic too s23dino.
how about that buying/selling CDS and selling call/put CS options one?
Jed Wrote: ------------------------------------------------------- > No matter how good the quality of the collateral > (e.g. Treasury Bills), it can still drop in price. > I want to be sure you’ll buy it back from me at > the agreed upon price. I might be beating a dead horse, but any further thoughts on this? I still think the quality of collateral is less important (& therefore the correct answer) vs borrower quality (aka credit risk).
^ seems like we are the minoroity though… : (
buy cds
thetank Wrote: ------------------------------------------------------- > blah, i dont remember. i thought they extended a > a fixed rate long, and expected IR to rise, so > they swapped into a pay fixed receive float, and > now they want to get out so i put receive fixed > pay float, > > eiither way looks like i;m wrong that’s what I perceived too. I remember they entered into a swap before considering the swaption already so i chose receive-fixed. anybody has the same memory too?
Jed Wrote: ------------------------------------------------------- > But keep in mind - if you sell an option, you’re > exposing yourself to downside risk. > > They swapped into receive floating to take > advantage of falling interest, but wanted to > PROTECT against the possibility of rates rising. > Buying a payer swaption was the only way to > protect against a rise, while still maintaining > the upside if the rates fall as expected. but didn’t they already own a swap and therefore this would cover the position?
Jed Wrote: ------------------------------------------------------- > Jed Wrote: > -------------------------------------------------- > ----- > > No matter how good the quality of the > collateral > > (e.g. Treasury Bills), it can still drop in > price. > > I want to be sure you’ll buy it back from me at > > the agreed upon price. > > > I might be beating a dead horse, but any further > thoughts on this? I still think the quality of > collateral is less important (& therefore the > correct answer) vs borrower quality (aka credit > risk). general interest rates in the economy is the lest important because it makes no sense to the question at hand. i think you confused general interest rates in economy and fed funds rate.
oskigo Wrote: ------------------------------------------------------- > Jed Wrote: > -------------------------------------------------- > ----- > > But keep in mind - if you sell an option, > you’re > > exposing yourself to downside risk. > > > > They swapped into receive floating to take > > advantage of falling interest, but wanted to > > PROTECT against the possibility of rates > rising. > > Buying a payer swaption was the only way to > > protect against a rise, while still maintaining > > the upside if the rates fall as expected. > > > but didn’t they already own a swap and therefore > this would cover the position? Correct - and I don’t want to pretend like I’m totally confident here, BUT, I don’t think they wanted to cover (from my vague recollection of the wording) so much as protect against the downside.
wait but the were the LENDER, not the borrower right? the swapped into a pay fixed receive float to take advantage of rising rates
would that protect against only a spread widening though? I thought it had to be a credit spread option, I just can’t remember what option it’d be. thetank Wrote: ------------------------------------------------------- > buy cds
CDS won’t trigger until default event. need credit options, i think i voted for the short calls??? fuzzy on the details now. the puts didn’t work for some reason.
cds is cure for all if you want credit protection, you can’t go wrong with that
Short calls doesn’t hedge anything. It gives you extra income when your position is losing, but it’s not a hedge.
actuaryalfred Wrote: ------------------------------------------------------- > how about that buying/selling CDS and selling > call/put CS options one? Buy credit default swap.
former trader Wrote: ------------------------------------------------------- > Jed Wrote: > -------------------------------------------------- > ----- > > Jed Wrote: > > > -------------------------------------------------- > > > ----- > > > No matter how good the quality of the > > collateral > > > (e.g. Treasury Bills), it can still drop in > > price. > > > I want to be sure you’ll buy it back from me > at > > > the agreed upon price. > > > > > > I might be beating a dead horse, but any > further > > thoughts on this? I still think the quality of > > collateral is less important (& therefore the > > correct answer) vs borrower quality (aka credit > > risk). > > > general interest rates in the economy is the lest > important because it makes no sense to the > question at hand. i think you confused general > interest rates in economy and fed funds rate. The rate has to be based on some interest rate though, IMO. I think they meant for the “general interest rate” as a sort of international proxy for the fed funds rate. Definitely not that confident on this one either though.