Pricing Interest Rate Swaps and Interest Rate Options

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Pricing Interest Rate Swaps and Interest Rate Options

A key element in valuing interest rate products is the interest rate term structure. Once we have the interest rate term structure we can then use it to project cash flows of various interest sensitive products to determine their payment streams as well as discount the cash flows to determine prices or values.


Topics covered:

  1. Definition of different types of interest rates
  2. Overview of swap contract variations
  3. Summary of the pricing process for interest rate swaps
  4. Step-by-step methodology for deriving zero coupon and forward rate term structures
  5. Step-by-step procedures for determining the price of
  • interest rate swaps, such as
    • coupon swaps or fixed-for-floating swaps
    • basis swaps or floating-for-floating swaps
  • Cross currency swaps, such as
    • Fixed-for-fixed currency swaps
    • Floating-for-floating currency swaps
    • Amortizing floating-for-floating currency swaps
  • Interest rate options, such as
    • Caps and floors
    • Accrual swaps
    • Range accrual notes
    • Commodity Linked notes


EXCEL files:

The pre-package deal also contains the 3 EXCEL files that illustrate:

  1. The calculation of zero coupon and forward rate curves from the par term structure
  2. The calculation of prices of interest rate swaps, cross currency swaps and interest rate options