Recall that in an interest rate swap, the counterparty receiving a floating interest rate payment and paying a fixed interest rate c has a payoff equal to:

at time T1,T2,...,T. Note that the payoff determined at Ti1 = Ti is made one period later, i.e. at time Ti. Consider a three-period, fixed-for-floating par swap defined on the one-period rate and with annual payments. The swap rate is c = 6.154% over a notional of N = $100. The payments are annual, i.e. = 1. Given the interest rate tree in Table 1, compute the swap value tree. What is the value of the swap at origination?

CF(T) Ax N x (rn(T; - A,T) - c) CF(T) Ax N x (rn(T; - A,T) - c)