Here is the second course on Advance Interest Rate Products. The perquisite for this course is the first course on pricing interest rate swaps Online Finance – Pricing Interest Rate Swaps – The valuation course The second more advance course builds on the foundation laid
Here is the first course on pricing interest rate swaps and cross currency swaps divided into three separate sections that address basics of interest rate swaps, term structure modeling and boot strapping and mark to market and valuation. Basics Online Finance Course – Pricing Interest
Here are four posts from the Oil Insights blog that have caught the eye of traders and analysts that would also serve as useful reads for students of finance and options on this blog. Take a special look at the oil correlation posts and think
Caps and Floors The most commonly used options in the swaps market are caps and floors. A cap is a call on the rates where the payoff depends on Max (LIBOR – Strike, 0). A floor is a put on the rates where the payoff
Cap-Floor Parity The cap- floor parity says that being long a cap and short a floor with the same strike is equivalent to paying the fixed leg in the swap where the fixed rate is equal to the strike rate. In other words, Cap –
Amortizing Floating for Floating Currency Swap In an amortizing swap, the principal reduces in a predetermined way. For our illustration we assume that the principal reduces by 25% in each period. The rest of the parameters and assumptions are the same as for the floating
Floating for Floating Currency Swap For our pricing example most of the assumptions will be the same as that used in the example for fixed for fixed floating currency swap above except for the interest rates used to calculate the floating rate payments. Let us
Pricing Cross Currency Swaps Fixed for Fixed Currency Swap The fixed for fixed cross currency swap will be priced as a portfolio of forward foreign exchange contracts, where each exchange of payments is a forward foreign exchange contract. The assumption is that the forward exchange
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
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