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8/8/2019 Counter Party Credit Risk in Interest Rate Swaps During Times of Market com
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94 95 96 97 98 99 00 01 02 030
20
40
60
80
100
120
140
Basis
Points
2year5year10year
Figure 1Historical Swap Spreads
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2 3 4 5 6 7 8 9 105.8
5.9
6
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
maturity (years)
percent
ActualImplied by futures
Figure 2Average swap curve (Jan 1994 Mar 2002)
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93 94 95 96 97 98 99 00 01 02 0350
100
150
200sixmonth/fiveyear swaption
93 94 95 96 97 98 99 00 01 02 03100
150
200
250oneyear/fiveyear swaption
93 94 95 96 97 98 99 00 01 02 03150
200
250
300twoyear/fiveyear swaption
93 94 95 96 97 98 99 00 01 02 03200
250
300
350
400fiveyear/fiveyear swaption
93 94 95 96 97 98 99 00 01 02 030.6
0.8
1
1.2
1.4 Memo: Short Rate Volatility (percentage points)
Figure 3
Actual and Theoretical Swaption Prices*
*Swaption prices (the solid lines) are in US dollars and correspond to options to enter into a fiveyear swap with a notional principal of $10,000.Theoretical prices (the dashed lines) are based on the HoLee model.The lower panel shows the values of the short rate volatility paramenter () that allowed the model to best fit the quoted prices.
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2 3 4 5 6 7 8 9 105.8
5.9
6
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
maturity (years)
percent
ActualImplied by futuresSynthetic
Figure 4Average swap curve (Jan 1994 Mar 2002)
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2 3 4 5 6 7 8 9 104
4.5
5
5.5
6
6.5
maturity (years)
percent
ActualImplied by futuresSynthetic
Figure 5Swap curves (week ending March 22, 2002)
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9495
9697
9899
0001
0203 2
4
6
8
10
50
0
50
maturity (years)
Figure 6: Spread between Actual and Synthetic Swap Rates
Time
basispoints
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95 96 97 98 99 00 01 02
20
10
0
10
20
twoyear rate
95 96 97 98 99 00 01 02
20
10
0
10
20
threeyear rate
95 96 97 98 99 00 01 02
20
10
0
10
20
basis
points
fiveyear rate
95 96 97 98 99 00 01 02
20
10
0
10
20
sevenyear rate
95 96 97 98 99 00 01 02
20
10
0
10
20
tenyear rate
Figure 7
Residuals of Levels Regressions
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