Consider a fixed payer, plain vanilla, interest rate swap paid in arrears with the following characteristics (1) The start date is in 12 months, the maturity is 24 months (2) Floating rate is 6 month USD Libor (3) The swap rate is 5 (a) Represent the cash flows generated by this swap on a graph (b)...

a Let N denote the notional amount of the swap and L 12 and L 18 the USD Libor rate at 12 months and ...

Consider a fixed-payer, plain vanilla, interest rate swap paid in arrears with the following characteristics: (1) The

Question:

Consider a fixed-payer, plain vanilla, interest rate swap paid in arrears with the following characteristics:
(1) The start date is in 12 months, the is 24 months.
(2) Floating rate is 6 month USD Libor.
(3) The swap rate is κ = 5%
(a) Represent the cash flows generated by this swap on a graph.
(b) Create a synthetic equivalent of this swap using two Forward Rate Agreements (FRA) contracts. Describe the parameters of the selected FRAs in detail
(c) Could you generate a synthetic swap using appropriate interest rate option?

Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...