LucasGomez
Junior Member
Posts: 5
Joined: Oct 2012

Mon Oct 29, 12 05:59 AM


Hey kgdakid21
Maybe you could check out my post in the General Forum (here's the Link: http://www.wilmott.com/messageview.cfm?catid=3&threadid=92629) I was looking for an answer to Rho greek computation on a eurpean FXO and I posted some formulae on DV01 that maybe you could find useful.
To me DV01 is any sort of analysis that involves finding out the expected change in an asset's market value given a small change in interest rates. As with everything in life, there are several ways of looking at things and solving questions, hence not being this the exception you'll find that there are several ways of computing DV01.
For the sake of clarity say you've got a fixedfloating IRS, from it you could derive either analytically (e.g. Partial derivatives) or based on simulation (e.g. stressing parameters and finite differences after) several values of interest rate sensitivity or DV01, these are:
1) "Expected change of each leg's MV based on":
 a +/ 0.01 shift of their equivalent yields.  a +/ 0.01 shift of the interpolated zero coupon rates applicable to each flow date.  a +/ 0.01 shift of the nodes of the relevant zero coupon curves (either One by One, the curve as a whole or buckets/Sections of it).  a +/ 0.01 shift of the nodes of the relevant Par/Market curves (either one by one, the curve as a whole or buckets/Sections of it).
2) "Expected change of the floating leg MV based on":
 a +/ 0.01 shift of the interpolated zero coupon rates associated to the implied forward rate computation.  a +/ 0.01 shift of the nodes of the relevant zero coupon curves associated to the implied forward rate computation.  a +/ 0.01 shift of the nodes of the relevant Par/Market curves associated to the implied forward rate computation.  a +/ 0.01 shift of the index value at the coming fixing date.
As you can see its possible to compute various risk figures based on the discounting, the index forwarding, the interpolation methodology, the computing approach, FX forwarding (not treated above but still there) etc..
I'm curious to know, you being an FX guy didn't you analyze DV01 on FX forward positions?
Also, I recomend reading Thomas Ho on "Key Rate Durations (KRD)" you can google it or find it at IIJ.
Hope it helped!
best,

Lucas M. Gomez

