文档介绍：Chapter 25
Swaps Revisited
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Valuation of Swaps
The standard approach is to assume that forward rates will be realized
This works for plain vanilla interest rate and plain vanilla currency swaps, but does not necessarily work for non-standard swaps
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Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull
Variations on Vanilla Interest Rate Swaps
Principal different on two sides
Payment frequency different on two sides
Can be floating for floating instead of floating for fixed
It is still correct to assume that forward rates are realized
How should a swap exchanging the 3-month LIBOR for 3-month T-Bill rate be valued?
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Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull
Compounding Swaps
Interest pounded instead of being paid
Example: the fixed side is 6% compounded forward at % while the floating side is LIBOR plus 20 pounded forward at LIBOR plus 10 bps.
This type pounding swap can be valued using the “assume forward rates are realized” rule. This is because we can enter into a series of forward contracts that have the effect of exchanging cash flows for their values when forward rates are realized.
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Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull
Currency Swaps
Standard currency swaps can be valued using the “assume forward LIBOR rate are realized” rule.
Sometimes banks make a small