
Interest Rate Swap Valuation Practical Guide
An interest rate swap is an agreement between two parties to exchange future interest rate payments over a set period of time. It consists of a series of payment periods, called swaplets. The most popular form of interest rate swaps is the vanilla swaps that involve the exchange of a fixed interest rate for a floating rate, or vice versa. There are two legs associated with each party: a fixed leg and a floating leg. Swaps are OTC derivatives that bear counterparty credit risk beside interest rate risk.Interest rate swaps are the most popular OTC derivatives that are generally used to manage exposure to fluctuations in interest rates. Swaps can be also used to obtain a marginally lower interest rate. Thus they are often utilized by a firm that can borrow money easily at one type of interest rate but prefers a different type. They also allow investors to adjust interest rate exposure and offset interest rate risks. Speculators use swaps to speculate on the movement of interest rates. More and more swaps are cleared through central counterparties nowadays (CCPs). This presentation gives an overview of interest rate swap product and valuation model. You can find more information at http://www.finpricing.com/lib/IrSwap.html
Tags:
Interest rate swap , OTC derivatives , Pricing model , Swaplet , Valuation
By:
alanwhite
Business & Finance
17 months ago
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Compounding Swap Valuation Practical Guide
A compounding swap is an interest rate swap in which interest, instead of being paid, compounds forward until the next payment date. Compounding swaps can be valued by assuming that the forward rates are realized. Normally the calculation period of a compounding swap is smaller than the payment period. For example, a swap has 6month payment period and 1month calculation period (or 1month index tenor). An overnight index swap (OIS) is a typical compounding swap.This presentation gives an overview of compounding swap product and valuation model. You can find more information at http://www.finpricing.com/lib/IrCompoundingSwap.html
Tags:
Compounding swap , Interest rate swa , OTC derivatives , Swaplet , Valuation
By:
alanwhite
Business & Finance
17 months ago
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Amortizing and Accreting Swap Valuation Practical Guide
An amortizing swap is an interest rate swap whose notional principal amount declines during the life of the contract whereas an accreting swap is an interest rate swap whose notional principal amount increases instead. The notional amount changes could be one leg or two legs, but typically on a fixed schedule. The notional principal is tied to an underlying financial instrument with a declining principal, such as a mortgage or an increasing principal, such as a construction fund.The notional principal of an amortizing swap is tied to an underlying financial instrument with a declining principal, such as a mortgage. On the other hand, the notional amount of an accreting swap is tied to an underlying instrument with an increasing principal, such as a construction fund. The notional principal schedule of an amortizing or an accreting swap may decrease or increase at the same rate as the underlying instrument. Both amortizing and accreting swaps can be used to reduce or increase exposure to fluctuations in interest rates. This presentation gives an overview of amortizing or accreting swap product and valuation model. You can find more information at http://www.finpricing.com/lib/IrAmortizingSwap.html
Tags:
Accreting Swap , Amortizing swap , OTC derivatives , Swaplet
By:
alanwhite
Business & Finance
17 months ago
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Basis Swap Valuation Practical Guide
A basis swaps is an interest rate swap that involves the exchange of two floating rates, where the floating rate payments are referenced to different bases. Both legs of a basis swap are floating but derived from different index rates (e.g. LIBOR 1 month vs 3 month). Basis swaps are settled in the form of periodic floating interest rate payments. They are quoted as a spread over the reference index. For example, 3month LIBOR is frequently used as a reference. Spreads are quoted over it.A basis swap can be used to limit interest rate risk that a firm faces as a result of having different lending and borrowing rates. Basis swaps help investors to mitigate basis risk that is a type of risk associated with imperfect hedging. Firms also utilize basis swaps to hedge the divergence of different rates. Basis swaps could involve many different kinds of reference rates for the floating payments, such as 3month LIBOR, 1month LIBOR, 6month LIBOR, prime rate, etc. There is an active market for basis swaps. This presentation gives an overview of interest rate basis swap product and valuation model. You can find more information at http://www.finpricing.com/lib/IrBasisSwap.html
Tags:
Bas , Basis swap , Interest rate swap , OTC derivatives , Swaplet
By:
alanwhite
Business & Finance
17 months ago
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Currency Option Introduction and Pricing Guide
A currency option, also known as FX Option, is a derivative contract that grants the buyer the right but not the obligation to exchange money denominated in one currency into another currency at a preagreed exchange rate on a specified future date. The FX options market is the deepest, largest and most liquid market for options of any kind. Most FX derivatives trading is over the counter (OTC) and is lightly regulated. This presentation gives an overview of FX option definition and pricing model. You can find more details at http://www.finpricing.com/lib/FxOption.html
Tags:
Black model , Currency option , FX option , FX risk , Hedging
By:
miketaylor1203
Business & Finance
16 months ago
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