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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 priced below:

Term Sheet

BASIS SWAP (FLOATING FOR FLOATING)
Notional

100,000

Floating Rate 1 (Paying Leg)

Treasury Rate

Floating Rate 2 (Receiving Leg)

Interbank Offer Rate + spread

Spread

0.50%

Payment

Annual

Fixed Rate Payment Dates

1st Day of the year starting January 2011 and ending on the Maturity Date

Floating Rate

same as Fixed

Valuation Date

27/05/2010

Maturity Date

01/01/2015

Day count convention

A/360 for Leg 1 & A/365 for leg 2

Pricing

Treasury

Interbank

Paying Leg

Receiving Leg Payment

Period End

ZC

FC

ZC

FC

Rate

Cash flow

Rate

Cash flow

PV of Paying Leg

PV of Receiving Leg

01/01/11

12.21%

12.21%

12.15%

12.15%

12.21%

7,326

12.65%

7,590

6,830

7,085

01/01/12

12.28%

12.33%

12.23%

12.27%

12.33%

12,326

12.77%

12,772

10,214

10,620

01/01/13

12.35%

12.50%

12.35%

12.59%

12.50%

12,505

13.09%

13,086

9,195

9,664

01/01/14

12.41%

12.55%

12.42%

12.59%

12.55%

12,546

13.09%

13,093

8,184

8,588

Total PV

34,424

35,958

Price

1,533.73

2 thoughts on “Online Finance – Pricing Interest Rate Swaps – Pricing Basis Swap”

  1. Pingback: Options, Forwards, Futures: Pricing Interest Rate Swaps
  2. Trackback: Options, Forwards, Futures: Pricing Interest Rate Swaps
  3. Pingback: Forwards and Swaps Interest Rates Models Bootstrapping the Zero curve and Implied Forward curve | Learning Corporate Finance
  4. Trackback: Forwards and Swaps Interest Rates Models Bootstrapping the Zero curve and Implied Forward curve | Learning Corporate Finance

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