Swaps

Question 1

Interest rates Swaps PRICE and VALEU are:

Answer 1

Price = fixed rate swap, (constant)

Value = zero, Vary

Question 2

What happens with swap value when Foward rate curve shifts upward?

Answer 2

Loses value

Question 3

Pricing a swap step by step using a 3 period Swap

Answer 3

Given the S1, S2 and S3 prices:

1. Pv your spot curve

F1,0 = S1
F1,1 = (1+S2)^2
————
(1+S1)

F1,2 = (1+S3)^3
—————
(1+S2)^2

————————————-
F1,0 + F1,1 + F1,2 = 0 or Pv of fixed payments

Pv of floating = Pv of fixed

[ 1 + 1. + 1 ] x Fixed Rate = Pv
——— ———- ———. Of
(1+S1) (1+S2). (1+S3). Floating

Fixed Rate = swap price !!

Question 4

The prices of implicit fowards contracts in swap will be equal?
What is their sum?

Answer 4

No.
Their sum = 0, but they are not the same