Here is the second course on Advance Interest Rate Products. The perquisite for this course is the first course on pricing interest rate swaps
Online Finance – Pricing Interest Rate Swaps – The valuation course
The second more advance course builds on the foundation laid in…
Premium Courses Calculating VaR – EXCEL Example$13.99How to utilize results of a Black Derman Toy Model – EXCEL Example$42.99Derivative Products - Package$15.00Setting Counterparty Limits - Package$169.00Here is the first course on pricing interest rate swaps and cross currency swaps divided into three separate sections that address basics of interest rate swaps, term structure modeling and boot strapping and mark to market and valuation.
Basics
Online Finance Course – Pricing Interest Rate Swaps (IRS) – Terminology…
Premium Courses How to utilize results of a Black Derman Toy Model$14.49Monte Carlo Simulation - Package$18.00Pricing IRS – Module I – Term Structures EXCEL Example$13.99Building Maturity & Liquidity Profiles for Deposits and Advances$149.00Here are four posts from the Oil Insights blog that have caught the eye of traders and analysts that would also serve as useful reads for students of finance and options on this blog. Take a special look at the oil correlation posts and think about the impact and consequences on option trading and a constant volatility assumption.
Euro and Oil outlook – Trailing correlation between crude oil… Premium Courses Monte Carlo Simulation – Currency – Example$8.99Risk Frameworks & Applications – 2nd Edition$140.00Setting Counterparty Limits$69.00Corporate Finance – First Course – Includes case study$17.49The most commonly used options in the swaps market are caps and floors. A cap is a call on the rates where the payoff depends on Max (LIBOR – Strike, 0). A floor is a put on the rates where the payoff depends on Max (Strike-LIBOR, 0).
CapA cap may be considered as a portfolio of caplets on the underlying asset which is the LIBOR. The value of…
Premium Courses Setting Counterparty Limits$69.00Setting Counterparty Limits - Package$169.00ICAAP – Overview & Core Concepts$59.00Monte Carlo Simulation - Package$18.00The cap- floor parity says that being long a cap and short a floor with the same strike is equivalent to paying the fixed leg in the swap where the fixed rate is equal to the strike rate.
In other words, Cap – Floor = Swap.
From the above two examples on caps and floors we see that this value is
408.33-669.22 =-260.89.
Calculating an interest rate swap, with fixed rate equal…
Premium Courses Selling Derivative Products$199.00Portfolio VaR – EXCEL Example$59.00Asset Liability Management (ALM) Crash Course - Package$125.00Basel III – Liquidity Framework$41.49In an amortizing swap, the principal reduces in a predetermined way. For our illustration we assume that the principal reduces by 25% in each period. The rest of the parameters and assumptions are the same as for the floating for floating currency swap given above.
The amortization schedule is as follows:
For our pricing example most of the assumptions will be the same as that used in the example for fixed for fixed floating currency swap above except for the interest rates used to calculate the floating rate payments. Let us assume that the floating interest rate payments for the USD leg is based on the US LIBOR and the floating interest rate payments for the…
Premium Courses ALM – Crash Course$59.00Ratio Analysis$16.69Derivative Pricing – Binomial Trees EXCEL Example$12.99Setting & Linking VaR, Stop loss & PSR Limits$199.00The fixed for fixed cross currency swap will be priced as a portfolio of forward foreign exchange contracts, where each exchange of payments is a forward foreign exchange contract. The assumption is that the forward exchange rates will be realized. The forward exchange rates will be calculated using the following equation:
where r and rf are compounded continuously
or
, if the interest rates were…
Premium Courses Derivatives Pricing - Package$40.00Credit Process$11.99Calculating VaR – EXCEL Example$13.99Monte Carlo Simulator with Historical Returns$199.00The same methodology will be used to price floating for floating or basis swaps, except that zero curves and forward rates will be derived for both legs of the swap accordingly.
The following basis swap has been priced below:
Term SheetThe cash flows for the receiving and paying legs are as follows:
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