Geek generation

Sensitivities to risk factors (Greeks) and delta-gamma-vega (DGV) P&L are computed with respect to zero rates for fixed income instruments, while in the VaR system, the computation will be performed with respect to STUB and Swap (constant maturity swap) instrument curves. The all-in zero curves will be constructed using government (GOVT) zero curves and corporate/agency credit spreads, and using Front Ofice system, will be transformed to STUB and Swap instrument rates, from which the Greeks will be generated.

We have investigated the effects on the DGV P&L distribution due to the transformation of Monte Carlo scenarios from zero rates to STUB and Swap rates, and the generation of Greeks with respect to the STUB and Swap time bucket curves. A comparison of the P&L distributions generated using scenarios and sensitivities generated with respect to the Zero, STUB, and Swap curves was performed for a US agency bond.

The zero rates for the agency bond were transformed to rates with USD STUB time bucketing and rates with Swap time bucketing. The delta and gamma sensitivities with respect to each point on the three curves were generated, and 20,000 scenarios of the zero rates were generated and then transformed to rates on the STUB time bucket curve and rates on the Swap time bucket curve. Using the sensitivities and scenarios, the DGV P&L distributions with respect to each of the three time bucket spaces (Zero, STUB, and Swap) were constructed, with the P&L for each scenario.

References

• Archive floor pdf
• gitbook local
• github three
• core cva pdf
• core cva