Grundlegende Frage zur Preisgestaltung von Plain Vanilla Interest Rate Swaps
What is a plain vanilla interest rate swap?
Plain Vanilla Interest Rate Swap is an agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for another based on a specified principal amount.
How is a currency swap different from a plain vanilla interest rate swap?
Unlike an interest rate swap, the parties to a currency swap will exchange principal amounts at the beginning and end of the swap. The two specified principal amounts are set so as to be approximately equal to one another, given the exchange rate at the time the swap is initiated.
What is a plain vanilla interest rate swap are swaps a significant source of capital for multinational firms?
Are swaps a significant source of capital for multinational firms? The plain vanilla interest rate swap is not a source of capital; it only alters the interest rate price on repayment of a theoretical—notional—debt principal.
How do you calculate interest rate swap?
Valuation of an Interest Rate Swap
The value of a fixed-rate swap at some future point in time t is determined as the sum of the present value of the difference in fixed swap rates times the notional amount.
Why would you do an interest rate swap?
Why Is It Called „Interest Rate Swap“? An interest rate swap occurs when two parties exchange (i.e., swap) future interest payments based on a specified principal amount. Among the primary reasons why financial institutions use interest rate swaps are to hedge against losses, manage credit risk, or speculate.
Which are the four most common currency denominations for interest rate and currency swaps?
The four most common currencies used to denominate interest rate and currency swaps are the euro, U.S. dollar, Japanese yen, and the British pound sterling, with the fifth most common currency being the Canadian dollar for interest rate swaps and the Swiss franc for currency swaps.
What are interest rate swaps and how do they work?
Essentially, an interest rate swap turns the interest on a variable rate loan into a fixed cost. It does so through an exchange of interest payments between the borrower and the lender. The borrower will still pay the variable rate interest payment on the loan each month.
What is an interest rate swap example?
Generally, the two parties in an interest rate swap are trading a fixed-rate and variable-interest rate. For example, one company may have a bond that pays the London Interbank Offered Rate (LIBOR), while the other party holds a bond that provides a fixed payment of 5%.
What is swap and types of swap?
Types of swaps
- Interest rate swaps.
- Basis swaps.
- Currency swaps.
- Inflation swaps.
- Commodity swaps.
- Credit default swap.
- Subordinated risk swaps.
- Equity swap.
How do you calculate swap duration?
Thus, the duration of the swap can be summarized as:
- duration of swap=duration of long position−duration of short position.
- 0.125−0.75=−0.625,
- a negative duration. Effectively, when rates rise, his short position would be worth less. As a note of reference change in price=−duration⋅change in yield.
How do you calculate interest rate swap MTM?
For the first duration because of the fractional period, the cash flow will be adjusted as follows: fixed rate * tenor*notional amount = 12% *0.6*100,000 = 7,200.
Pricing an Interest Rate Swap – Calculating the MTM of the Swap.
| Period End | PV of Fixed Leg | PV of Floating Leg |
|---|---|---|
| Total | 33,432.2680 | 35,957.6383 |
What is the current swap rate?
SOFR swap rate (annual/annual)
| Current | ||
|---|---|---|
| 1 Year | 2.265% | 0.051% |
| 2 Year | 2.744% | 0.115% |
| 3 Year | 2.809% | 0.301% |
| 5 Year | 2.753% | 0.727% |