标题: simple interest or compound interest for swap? [打印本页] 作者: mkytz15 时间: 2011-7-11 20:06 标题: simple interest or compound interest for swap?
A $10 million 1-year semi-annual-pay LIBOR-based interest-rate swap was initiated 90 days ago when LIBOR was 4.8%. The fixed rate on the swap is 5%, current 90-day LIBOR is 5% and 270-day LIBOR is 5.4%.
To calculate the value to fix-paying-investor we need the discount rate.
in the answer, it calculate discount rate like: (1 + 0.05 作者: scarecrow 时间: 2011-7-11 20:06
On what occasion do we use Simple Interest rates?
Is there a standard of some sort?作者: wizofoz 时间: 2011-7-11 20:06
The annualized rate is 5% not 105%
It sounds like ou're just taking the 90 day libor and de-annualizing it and it happens to be used in the discounting.作者: Swanand 时间: 2011-7-11 20:06
Swaps, Swaptions, & FRAs use this convention. The reason for it is that the LIBOR term structure is quoted in annualized terms. For example:
180-Day Rate: 6.0% (Actual 180 day rate = 6.0%*(180/360) = 3.0%
360- Day Rate: 7.0% (Actual 360 day rate = 7.0%*(360/360) = 7.0%
You just have to undo the convention for annualizing the rates.
