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 |
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