Facts, rules of thumb, and intuition for swap spreads

The N-year swap spread is defined as: N-yr swap spread := N-yr swap rate - N-yr government bond yield. Since most quants spend much less time on the bond market than on the swaps market,  they often don't come to appreciate the central importance of the swap spread. Here is an unordered list of why … Continue reading Facts, rules of thumb, and intuition for swap spreads

LIBOR vs LIBID

Everybody talks about LIBOR, and you don't really hear much about LIBID. In fact, the BBA only fixes LIBOR and LIBID is left to free float if you like. The fact is that most banks will need to borrow more than they will need to lend. Or rather, for each investment opportunity they see they will … Continue reading LIBOR vs LIBID

Ito’s product and quotient rules as described by a trader

Ito's product and quotient rules are a corollary of the Ito lemma, and are one of the  most important parts of the stochastic-calculus toolkit. When I first started working as a quant I managed to find an alternative form for the rules which sits well in a Black-Scholes type of world and corresponds more closely … Continue reading Ito’s product and quotient rules as described by a trader