SWAP Rate

swarnendupathak
Finance Junkie
Posts: 119
Joined: Mon Sep 17, 2012 11:06 am

SWAP Rate

Postby swarnendupathak » Sun Oct 28, 2012 11:47 pm

Hi,
Can anyone please highlight on SWAP rate & how it is calculated & difference between par rate, zero rate.

Swarnendu

Tags:

content.pristine
Finance Junkie
Posts: 356
Joined: Wed Apr 11, 2012 11:26 am

Re: SWAP Rate

Postby content.pristine » Mon Oct 29, 2012 3:50 pm

Swarnendu,

It would pretty difficult for me to explain swap valuation on the forum.
However, the explanation in the core readings (which happens to be Chapter 7 in Hull) is good and easy to understand.
You might also want to check out the class recordings of the same.

8-)

swarnendupathak
Finance Junkie
Posts: 119
Joined: Mon Sep 17, 2012 11:06 am

Re: SWAP Rate

Postby swarnendupathak » Mon Oct 29, 2012 4:00 pm

To be more precise, i want to know how the SWAP rate is calculated & is there is any difference between ZERO rates???

Swarnendu

content.pristine
Finance Junkie
Posts: 356
Joined: Wed Apr 11, 2012 11:26 am

Re: SWAP Rate

Postby content.pristine » Mon Oct 29, 2012 5:12 pm

Yes, there is a huge difference between Swap Rate and Zero Rate.
A 2 year Zero rate is the YTM of a Zero Coupon bond. Since there is only 1 cash flow at T=2, it is a pure rate. However, A 2 year swap rate, it has semi annual cash flows depending on LIBOR at T=0.5, T=1, T=1.5 and T=2.
Swaps are priced based on the No arbitrage valuation of LIBOR rates. Similar to find the "coupon/YTM" of a bond, based on spot rates.. Or reverse bootstrapping!! :lol:
The difference being, instead of Treasury Zero Rates, we use LIBOR rates..

8-)


Return to “FRM Part I”



cron

Disclaimer

Global Association of Risk Professionals, Inc. (GARP®) does not endorse, promote, review or warrant the accuracy of the products or services offered by EduPristine for FRM® related information, nor does it endorse any pass rates claimed by the provider. Further, GARP® is not responsible for any fees or costs paid by the user to EduPristine nor is GARP® responsible for any fees or costs of any person or entity providing any services to EduPristine Study Program. FRM®, GARP® and Global Association of Risk Professionals®, are trademarks owned by the Global Association of Risk Professionals, Inc

CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by EduPristine. CFA Institute, CFA®, Claritas® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

Utmost care has been taken to ensure that there is no copyright violation or infringement in any of our content. Still, in case you feel that there is any copyright violation of any kind please send a mail to abuse@edupristine.com and we will rectify it.