Question
A $100 million interest rate swap has a remaining life of 10 months. Under the terms of the swap, six-month LIBOR is exchanged for 4%
A $100 million interest rate swap has a remaining life of 10 months. Under the terms
of the swap, six-month LIBOR is exchanged for 4% per annum (compounded semiannually).
Six-month LIBOR forward rates for all maturities are 3% (with semiannual compounding).
The six-month LIBOR rate was 2.4% per annum two months ago. OIS rates for
all maturities are 2.7% with continuous compounding. What is the current value of the
swap to the party paying fixed? What is its value to the party paying floating?
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Modern Portfolio Theory and Investment Analysis
Authors: Edwin Elton, Martin Gruber, Stephen Brown, William Goetzmann
9th edition
9781118805800, 1118469941, 1118805801, 978-1118469941
