Pricing Interest Rate Swaps – Calculating the forward curve
< 1 min read Deriving the Forward Curve Step 9: Deriving forward rates In order to derive forward rates from the zero coupon rates
< 1 min read Deriving the Forward Curve Step 9: Deriving forward rates In order to derive forward rates from the zero coupon rates
3 mins read We use the bootstrapping bonds method to derive the zero curve from the par term structure. This is an iterative
3 mins read Defining the Par Term Structure Step 1: Select an appropriate term structure Based on the interest rate swap being priced
2 mins read The following process will be followed when determining the value or price of an interest rate swap. Firstly, a default
2 mins read Swaps This is an agreement between two parties, usually institutions, to exchange cash flows according to a predefined calculation at
2 mins read Relationship between Spot and Forward Rates The following formulas summarize the relationship between the spot and forward rates of interest: