# Daily Archives: May 30, 2010

## Online Finance – Pricing Interest Rate Swaps – Pricing Basis Swap

Pricing Basis Swaps or Floating for Floating Swaps The 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

## Online Finance – Pricing an Interest Rate Swap – Calculating the MTM of the Swap

Step 13: Determine the cash flows The cash flows for the receiving and paying legs are as follows: Fixed Leg Payment Floating Leg Payment Period End Rate Cash flow Rate Cash flow 01/01/2011 12.00% 7,200.00 12.65% 7,590.00 01/01/2012 12.00% 12,000 12.77% 12,772.30 01/01/2013 12.00% 12,000

## Online Finance Course – Pricing Interest Rate Swaps – Calculating the forward curve

Deriving the Forward Curve Step 9: Deriving forward rates In order to derive forward rates from the zero coupon rates for successive interest rate periods the bootstrapping methodology has been employed. In particular the following formula has been used: Where t is the tenor in

## Online Finance Course – Pricing Interest Rate Swaps – Calculating the forward curve

Deriving the Forward Curve Step 9: Deriving forward rates In order to derive forward rates from the zero coupon rates for successive interest rate periods the bootstrapping methodology has been employed. In particular the following formula has been used: Where t is the tenor in

## Online Finance Course – Pricing Interest Rate Swaps – Calculating the zero curve

Deriving the Zero Curve We use the bootstrapping method for deriving the zero curve from the par term structure. This is an iterative process that allows use to derive a zero coupon yield curve from the rates/ prices of coupon bearing instruments. The step by