The Swap

What Is a Swap?

A swap exchanges fixed and floating interest payments on a notional.

highlighted = computed this step

Fixed for floating

A plain-vanilla interest-rate swap exchanges fixed-rate payments for floating-rate payments on a notional. Here the notional is $100.00, the fixed example rate is 5%, and the curve is the same exact curve from the yield-curve book.

N=$100.00,K=5%N=\$100.00,\quad K=5\%

Curve inputs

The discount factors are 24/25, 9/10, and 21/25. The implied forwards are 1/24, 1/15, and 1/14.

(d1,d2,d3)=(24/25,9/10,21/25)(d_1,d_2,d_3)=(24/25,9/10,21/25)

Model setup

This is a model valuation off a stated curve. It ignores credit risk, counterparty risk, collateral, taxes, fees, and day-count details beyond the simple per-period convention.

stated curve, fixed notional, net payments\text{stated curve, fixed notional, net payments}