标题: How to size the interest rates swaps market? [打印本页] 作者: Carson 时间: 2011-7-13 16:29 标题: How to size the interest rates swaps market?
Hi,
I am trying to find out how much do broker dealers make on OTC interest rate swaps annually.
My approaches are as follows:
(1) Get the Interest rate swaps OTC notionals traded in $bn from bis.org. Multiply this with the average spread on interest rate contracts that broker dealers make.
Problem: I am not able to get average spreads on interest rate swaps.
(2) Look at 10Ks of JPMC, UBS, CS, GS etc to find out how much they make on interest rate derivatives trading (assuming ~70% of that is OTC interest rate derivatives, need to verify this number as well).
Problem: how much a dealer is making on interest rate derivatives on OTC specifically is hard to get.
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wondering if anyone can offer suggestions as to how to better my approach / new data sources / new approaches. pls help me!!!作者: wake2000 时间: 2011-7-13 16:29
i'm trading irs, so here are some insights:
take into account the tiering of customers. on CSA customers market makers show (only valid for liquid markets like USD, EUR) bid/offer spreads up to 10y with only 0.5- 1bp. so assuming equal flows on bid and offer its simple to compute p&l (in reality thats not the case as you have to hedge for example with futures, so be a bit more conservative). when it comes to non-csa counterparts margins are extremely different (from no margins at all for cross selling purposes to 20 or more bp for project customers where the desk is not in competition with other banks). so what you need is a pretty good idea of the (average) structure of a brokers customers. if you can break that down give every customer a weight, an average margin and an average bpv (depending on nominal and maturity) per deal. but be cautious with whatever you come up with because it can be only a rough estimate and everything is before other costs (all that mid- and backoffice things). what i said is only true for vanilla irs stuff, if your pupose is to include ccs and vega-products - good luck!作者: lcw77 时间: 2011-7-13 16:29
I think your approach is good. It is pretty difficult to gauge the spread that brokers/dealers make but a good way may be to do a valuation per Bloomberg of a standard swap, then get quotes on the same instrument by a few large banks and see what the difference is in the fixed rate between the bank and the Bloomberg rate. This can be done by calculating the break even rate given a certain notional schedule. You can also do it in Excel with Solver.
Another thing you may try to do is determine the bid ask on the Libor/Swap curve and see if that tells you what they are buying and selling at. Just a thought. I deal with IR swaps daily and have seen on average about $20k the banks make per trade. There is also a small credit component as well since swaps are traded off of the exchange.
