Derivative Pricing – Interest Rate Swaps and Futures – Calculation reference

Interest Rate Swaps and Future Contracts

Pricing Interest Rate Swap
Pricing Net Cash Flow
Valuing Futures contracts
Valuing Stock Index Futures
Pricing Futures Contracts on Currencies
Pricing Futures Contracts on Commodities
Pricing Futures Price for Treasury Bond futures contracts

Interest Rate Swap

Net Cash Flow

The net cash flow for the buyer of the contract (receiver of floating leg and payer of fixed leg) at each payment date is:

Net Cash Flow

Where t-1 is the payment date on which the floating rate interest was observed and is one payment date prior to the payment date on which the net cash flow is paid.

“days” are the period of time in the interest rate period (in years) based on the appropriate day count convention.

Futures

Stock Index Futures

These futuresare used to offset the exposure to a well diversified equity portfolio, in particular the systemic risk associated with the portfolio.

The futures price of stock indices with known yield is as follows:

Stock Index Futures

Futures Contracts on Currencies

The futuresprice is as follows:

Futures Contracts on Currencies

Where F0 is the futuresprice in local currency of one unit of foreign currency
S0 is the current spot price in local currency of one unit of foreign currency
r is the domestic risk free rate
rf is the foreign risk free rate

Futures Contracts on Commodities

The futuresprice of a commodity with no storage cost or income is as follows:

Futures Contracts on Commodities

The futuresprice of a commodity with storage cost and income is as follows:

Futures Contracts on Commodities 1

Where U is the discounted value of the storage costs net of income during the life of the futurescontract.

Futures Price for Treasury Bond futures  contracts

Futures Price for Treasury Bond futures  contracts

Where I is the present value of the coupons during the life of the contract discounted at the risk free rate.

Add comment

Comments

  1. Mark Menchin February 4, 2011 at 7:25 pm

    I am a CFA who recently left the business world but is eager to get back in. I would like to take a few ALM courses to brush up but am not sure if these courses are given at a specific location and / or just online. What are the prices and do you have discounts for bundled courses. Also what is your contact phone and e-mail addresses.

    Mark

    • Administrator February 5, 2011 at 10:58 am

      Dear Mark

      Thank you for dropping by.

      You can reach me at jawwad at alchemya dot com. Right now the courses are available live every three months in and around Malaysia. Our next workshop on ALM, Liquidity Management, ICAAP and Value at Risk is scheduled for 28th, 29th, 30th March 2011. Given your request I have started thinking about an online version for delivery through the web that should be up and running within the next few months.

      For the time being the courses are available for free online. For a small price you can download the material and read it on a self study basis side by side with sample excel templates. I hope that answers your questions.

      Warm regards

      Jawwad

Read previous post:
Black’s Formula: Pricing Interest Rate Caps and Floors – Calculation reference

Black Formula’s and valuing Interest Rate Caps and Floors Value of a caplet The value of a caplet which resets...

Close