Interest Rate Swaps. Cross Currency Swaps. MTM

2 mins read time

Interest Rate and Cross Currency Swaps

If you need to get up to speed on Interest Rate Swaps (IRS), Cross Currency Swaps MTM and valuation models, here is a short and sweet lesson plan that will get you there.

Starting off with the basics of forward pricing we review how to build projected zero and forward yield curves and then apply that knowledge in calculating the MTM for both interest rate swaps and cross currency swaps.  Lesson number three is a sample final exam solved by my MBA students while lessons four and five present the solution for the sample exam.

While I can try and teach swaps pricing and MTM  till I am blue in the face, the only way to learn this topic is  to solve the exam and build the excel spreadsheet yourself. If you need to be comfortable with the topic for an investment banking or sales and trading interview go forth and build. If you just need to be familiar a simple reading may suffice.

While you may not need it but we also introduce the concept of value at risk for interest rate and cross currency swaps using the historical simulation method. This is an advance topic that would be of use if you need to get comfortable with Pre-Settlement Risk limits (PSR limits) as well as Potential Future exposure (PFE) calculations.

Finally the old LIBOR based pricing models are increasingly being questioned. You need to understand how the OIS curve works which is covered in the final lesson.

Swaps Crash Course

Forward MTM Pricing Lessons

Basics – Forward and Spot rates reference

Forward Curve and Interest Rate Swaps Sample exam question

Bootstrapping Zero and Forward rates

Pricing and MTM of an IRS

IRS CCS Value at Risk – VaR for Swaps – Model walk through

VaR for Cross Currency Swaps – Excel Model for sale

LIBOR versus OIS


ALM Crash Course PDF & Excel package