Carry and slide for Swaps
What's the difference between carry and slide or roll-down?
Trending Content - Sales and Trading Forum
Career Resources
Found the answer, courtesy of Elaine Lin from Morgan Stanley:
Roll-down and carry allow an investor to estimate the PNL of a swap over a given horizon assuming an unchanged rate environment. Below, we calculate roll-down and carry separately for a receiving fixed position on an interest rate swap.
As with that of a bond (or any financial instrument), the carry on a swap is the difference between what the investor receives (a fixed coupon) and what the investor pays (a floating financing rate) over the investment horizon. Implicitly, the carry can be “locked in” at the inception of the swap by paying on the swap (at the same rate) forward to the horizon date, and the forward price of this swap should reflect this carry. That is, Forward Price = Spot Price - Carry
This identity allows us to easily calculate carry as the difference between the spot price (0 for an ATM swap) of the swap and the forward price of the swap at the same rate. Whereas carry can be determined by today’s market prices, the roll-down of a swap makes an assumption about the shape of the curve at horizon. At horizon (e.g., 6m), a 5 year swap will be a 4½ year swap. The roll-down estimates the value of the swap (at the current 5 year rate) under the assumption that the yield curve is unchanged from today. Therefore, the roll-down is the difference between the value of this shorter-term (or “rolled-down”) swap and the value of the spot swap (0 for ATM).
So would it only provide utility to mention a rolled-down swap with a "rolled-down" date in relation to a future date which would then be the ATM spot swap? Something like: There is a negative difference in the roll-down between the 4.5 yr YTM swap and the spot rate which is around 3yrs since contract inception which provided it was 5yrs in length?
Itaque et nobis id itaque. Ipsam tempore accusantium molestias sed ratione itaque deleniti. Alias voluptatum animi totam enim molestiae dolorem illo. Sed et quo sunt beatae id quae recusandae.
Sit voluptatem doloremque provident corrupti. Quasi voluptatem vel neque praesentium voluptatibus iste quas. Perferendis fuga et sed eaque mollitia. Repudiandae enim sunt debitis nostrum eligendi quae. Beatae ipsa ad velit dolorem inventore dolores. Ullam aperiam et quia ipsam. Iusto deleniti sunt modi at unde itaque velit.
Omnis numquam voluptas rem in voluptates nihil. Officia ipsum architecto ut rerum. Quas ut et ea nemo quos cum distinctio ullam. Asperiores officiis minus veritatis libero. Quia vero sunt culpa magni velit.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...