What is an interest rate swap?
(i) An interest rate swap is a contractual agreement entered into between two counterparties under which each agrees to make periodic payment to the other for an agreed period of time based upon a notional amount of principal. The principal amount is notional because there is no need to exchange actual amounts of principal in a single currency transaction: there is no foreign exchange component to be taken account of. Equally, however, a notional amount of principal is required in order to compute the actual cash amounts that will be periodically exchanged. Under the commonest form of interest rate swap, a series of payments calculated by applying a fixed rate of interest to a notional principal amount is exchanged for a stream of payments similarly calculated but using a floating rate of interest. This is a fixed-for-floating interest rate swap. Alternatively, both series of cashflows to be exchanged could be calculated using floating rates of interest but floating rates that are base
How Interest Rate Swaps are Quoted What is a Swap Spread? Quotation Basis Interest Rate Swap Applications Non-Standard Interest Rate Swaps Case Studies Chapter 5. Deriving a Zero Coupon Curve Building a Zero Coupon Curve The Bootstrapping Algorithm Generating Generic Discount Factors and FRAs Building a Zerocurve using Curveßuilder Bid and Offer Curves Chapter 6. Asset and Liability Swaps: Cashflows and Pricing Asset Swaps Bond Pricing: Given Target Floating Spread Curveßuilder Asset Swap Calculator Liability Swaps Mark To Market (MTM) Interest Rate Swaps Forward Starting Interest Rate Swap Amortising Swaps Short-Term Interest Rate Hedges Treasury Lock Spreadlock Chapter 7. Hedging and Trading Interest Rate Swaps Risk Measurement PV01 Hedging with Eurodollars Hedging with Government Bonds Portfolio Risk Management Chapter 8. Cross-Currency Interest Rate Swaps What is the Value of a Cross-Currency Basis Swap? Zero NPV Valuation Cross-Currency Basis Swaps Quotes and Pricing Synthetically
