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Blog-style articles that help you understand derivatives better by pricing them in Excel.

All available articles about Derivatives Pricing in Excel through Deriscope.

Dependence of USD Interest Rate Swaps Price & Risk on Modelling Assumptions affecting the Curve Building

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In my post about USD Interest Rate Swaps in Excel, I have explained in detail how to calculate the price and risk of a single USD interest rate swap using a multi-curve approach and actual market data from Bloomberg as of 22 May 2019.A comparative analysis between the single-curve and multi-curve approach has been laid out in my post focusing on sw...
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Pricing of Cross-Currency Collateralized Swaps using OIS vs non-OIS Discounting: The Mexican case.

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Last week I described the unique problem faced by interest rate swap traders when the collateral is kept in a currency different than the one where the swaps are denominated. You may want to visit that post for details on how the appropriate discounting (basis) curve in the Mexican case is constructed out of several market rates that include t...
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Building in Excel the Implied Risk-Free Discounting Curve when the Collateral is kept in another Currency. Example: Mexico, where no Local OIS Market exists.

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Before the 2007-08 financial crisis, all swap cash flows were discounted with the same yield curve used in "forecasting" the future Libor rates and thus the amounts of the floating cash flows.At any given time, this yield curve was constructed so that it reproduced the market prices of the swaps traded at that time.After its construction, the yield...
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476 Hits
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Using Bloomberg Tenor Basis Swap Spreads in Excel to calculate 1M USD Libor Forward Rates

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Until the 2007-08 financial crisis, forward interest rates of any tenor had been calculated off one single yield curve. In the US, traders had been building one USD yield curve out of market-traded deposits, futures and fixed-to-3M-Libor swaps and used that curve for all purposes involving interest rate calculations, such as extracting discount fac...
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218 Hits
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Carry and Roll-Down of USD Interest Rate Swaps in Excel with Bloomberg Comparison

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In my previous two posts I have shown how to calculate the price and DV01 of a single interest rate swap and how to do so with a book containing thousands of swaps.Now I turn my attention to the calculation of the Carry and Roll-Down of a single swap, which is defined as the total amount earned (realized + unrealized) by holding a swap up to a...
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311 Hits
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Trading Blotter and Book Risk Management of USD Interest Rate Swaps in Excel: Example of a Book with 10,000 Trades.

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In my previous post about USD Interest Rate Swaps in Excel, I explained how to calculate the price and risk of a single USD interest rate swap using actual market data from Bloomberg as of 22 May 2019.In the current post, I will make use of the same market data to calculate the prices and DV01s (both flat and bucket) of two different swap collectio...
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565 Hits
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USD Interest Rate Swap: Cash Flows and DV01 in Excel using Bloomberg Market Data

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In this post I will make use of the realistic yield curves I built in Excel out of Bloomberg OIS, deposit, futures and Libor swap rates as of May 22, 2019 towards calculating the price and producing the detailed cash flows, flat DV01 and maturity-dependent DV01s of a bespoke forward starting 3-year swap.You may want to visit the respective article,...
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745 Hits
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OIS Discounted USD Libor Curve Production in Excel for Front Office Trading

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I have already explained in my earlier yield curve building post how one can use the Excel Deriscope addin to derive the discount factors and zero rates implied by any given market rates of deposits, futures and swaps.At another post about dual bootstrapping, I calculated in Excel the price of an actual 50-year EUR collateralized swap held by ...
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2091 Hits
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Almost Corporate-Ready Unlimited-Currency FX Option Portfolio Pricing with and without Excel

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The question whether Excel can be trusted for pricing and risk managing derivative transactions seems to be a never ending one.If you are curious about my own opinion on this matter, you may jump to the end of this article. In the sequel, I will confront this issue through the real-world case of pricing and managing a book of FX options.In my last ...
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750 Hits
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Valuing a Portfolio of Multi-Currency FX Options and Producing its Value at Risk in Excel using Deriscope

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The topic here is not about simple option pricing but rather about dealing with the complexity introduced by the simultaneous existence of several different currencies in the context of calculating the Price and Value at Risk of a portfolio of European FX options.If you are not familiar with the basics of European option pricing in Excel using Deri...
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1058 Hits
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Floating Rate Notes (FRN) in Excel: Understanding Duration, Discount Margin and KRD

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Deriscope exports in Excel over 30 functions that deal with bonds, as I have described in an earlier document about bond risk management functions.In spite of the fact that the referred functions apply to all types of bonds, including interest rate and inflation linked bonds, one should be cautious when the referenced bond does not pay a fixed rate...
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Combining Randomized Quasi Monte Carlo (Sobol) and Parallel Processing (Multithreading) when Pricing Derivatives in Excel

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The beauty of Monte Carlo simulation is that it can be used to price any European financial derivative contract, of which the terminal payoff is expressed as a function of D terminal underlying factors by simulating the terminal values of these factors as of the contract's maturity date.It turns out, the successful execution of a Monte Carlo simula...
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Monte Carlo Pricing of any European Structured Product in Excel: Revisiting the Morgan Stanley Trigger Plus 2024 Note

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In my previous article I showed how one can use Deriscope in Excel to calculate the price of a particular type of a structured product that pays the minimum of two equity indices observed at some specified future terminal time. As example was used the Trigger Plus note issued by Morgan Stanley on April 1, 2019, which is based on the value of t...
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Perfect Bloomberg Price Match of an Interest Rate Swap in Excel by using Dual Bootstrapping

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Up until the financial crisis of 2008, the price calculation of an interest rate swap involved only the so-called Libor curve. The latter was essentially the discount factors (or equivalently zero rates or forward rates) implied by market-traded instruments, such as deposits, futures, forwards and swaps. The Libor curve was used to derive everythin...
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5716 Hits
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Pricing Structured Products in Excel: The Morgan Stanley Trigger Plus 2024 Note

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Various structured products can be precisely priced in Excel using Deriscope and its underlying QuantLib analytics. In this article I will focus on the Trigger Plus product issued by Morgan Stanley on April 1, 2019. It is based on the value of the worst performing of the Dow Jones Industrial Average and the Russel 2000 Index due April 4, 2024. It o...
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2299 Hits
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Currency Swaps and Basis Curves in Excel

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​The basic concepts of spot fx rates, forward fx contracts, fx swaps and the construction of foreign yield curves out of fx forward rates have been described in detail in my previous fx rates article.While these instruments cover the short end of the maturity spectrum – typically about a year -, the tenor of so-called currency swaps (also know...
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4293 Hits
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FX Spots, Forwards, Swaps and Curves in Excel

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​Assume you possess Nd units of a currency DOM regarded as domestic currency. For example, you live in the US and hold 1,000 USD, ie. Nd = 1,000 and DOM = USD.For whatever reasons, you want to replace this money with their equivalent number of units Nf of another currency FOR regarded as foreign currency. For concreteness think of FOR like if it we...
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18130 Hits
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Bond Key Rate Duration (KRD) in Excel: Calculating and Understanding

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You are all familiar with the concept of bond Duration, which tells us how much a bond's price changes if its yield goes up or down by a small amount.While there exist several different Duration definitions that produce slightly different results, the one that is most closely related to the Key Rate Duration is the Modified Duration D, which may be...
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6195 Hits
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Risk free Yield Curve Building in Excel using Negative Overnight Index Swap (OIS) Rates

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Long are the dates when all-purpose risk free yield curves were produced out of deposits, futures and swaps. Since the credit crisis of 2007/08, banks realized they should use different curves for different purposes. In the intervening years, quants have proven mathematically that uncollateralized contingent flows should be discounted using a curve...
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Overnight Index Swap (OIS): Pricing and Understanding using Excel

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Overnight Index Swaps (OIS) may be priced in Excel using the free and open source derivatives analytics QuantLib library through the Deriscope Excel interface.An OIS contract is very similar to a plain vanilla interest rate swap, the only difference being that each payment in the floating leg is calculated according to a floating number F that equa...
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9635 Hits
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How to compute the VaR: Step-by-Step Excel Guide

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The purpose of this article is to show you step-by-step how you can calculate the Value at Risk (VaR) of any portfolio by generating all simulation samples in the spreadsheet. This is great for understanding what's going on but it becomes too complex and slow when the number of samples generated by the simulation exceeds 100.If you don't ...
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7415 Hits
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Pricing of Risk Scaling Options in Excel

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You are all familiar with simple European call options that are securities promising to pay their holders at some agreed future time T the difference S(T) – K between the price S(T) realized by a monitored underlying S at time T and a fixed amount K, under the condition that S(T) is greater than K. The last long sentence may be compressed to t...
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Market Data in Excel from IEX

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IEX (Investors Exchange) is a new United States national stock exchange launched in New York in September 2016. Since February 2017 IEX publishes free of charge their trading data in real time. These include live and historical prices of over 8,000 US stocks and mutual funds plus financial information and news.If all you want is a very quick a...
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2975 Hits
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Market Data in Excel from TrueFX

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TrueFX is a provider of real time forex rates between the most liquid currencies. Both current prices and bid/offer quotes are streamed as quoted by various brokers. If all you want is a very quick and uncomplicated way (three mouse clicks!) to simply get live feeds in your spreadsheet, check out the 30 seconds videos below:Getting easily live...
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1854 Hits
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Market Data in Excel from Alpha Vantage

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Alpha Vantage is a provider of live and historical prices of global stocks, indices and forex rates (both fiat and crypto) as well as time series of statistical indicators. If all you want is a very quick and uncomplicated way (three mouse clicks!) to simply get live feeds in your spreadsheet, check out the 30 seconds videos below:Getting...
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Market Data in Excel from Barchart

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Barchart is – among else - a provider of live and historical prices of global stocks, indices, mutual funds, futures, options and forex rates (both fiat and crypto). If all you want is a very quick and uncomplicated way (three mouse clicks!) to simply get live feeds in your spreadsheet, check out the 30 seconds videos below:Getting easily...
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2058 Hits
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Market Data in Excel from Yahoo Finance

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Yahoo Finance is a provider of market information that includes live and historical prices of global stocks, indices, mutual funds, futures, options, commodities as well as forex (both fiat and crypto) and US treasury bond rates. If all you want is a very quick and uncomplicated way (three mouse clicks!) to simply get live feeds in y...
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12420 Hits
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Market Data in Excel from World Trading Data

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World Trading Data is a provider of live and historical prices of global stocks, indices, US mutual funds and forex rates. If all you want is a very quick and uncomplicated way (three mouse clicks!) to simply get live feeds in your spreadsheet, check out the 30 seconds videos below:Getting easily live stock prices in ExcelGetting easily l...
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