A $100 million interest rate swap has a remaining life of 10 months. Under the terms of
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A $100 million interest rate swap has a remaining life of 10 months. Under the terms of the swap, 6-month LIBOR is exchanged for 12% per annum (compounded semiannually). The average of the bid-offer rate being exchanged for 6-month LIBOR in swaps of all maturities is currently 10% per annum with continuous compounding. The 6-month LIBOR rate was 9.6% per annum 2 months ago. What is the current value of the swap to the party paying floating? What is its value to the party paying fixed?
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Saud Ur Rehman
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