There is a question on the schweser mock(exam1, q 117) that made me really confused about the value of a swap after some time period have passed. say 120 days have passed, we're looking for the value for the fixed and floating. It is a 2yr pay fixed
To value the fixed side, they're using the discount factors for days 60 , 240, 420, then 600...thats with the new term structure after 120 days....I have no clue as to why they use these. Shouldn't he use 600, 480, 360 and 180????作者: firat 时间: 2011-7-11 20:07
If it is a semi-annual payment schedule, payments at the initiation of the contract would be: 180, 360, 540 and 720.
120 days since the initiation the payments are due on day 60 (180-120), day 240 (360-120), day 420 (540-120) and day 600 (720-120).
Hope this helps!作者: Analyze_This 时间: 2011-7-11 20:07
Nope, the payoffs originally are coming at 180, 360, 540, 720 and they will still be coming at those dates from the original. Draw a line from the starting point of the agreement for these values. Now 120 days in, move the new starting point for valuation to 120 along that line. It is now 60 days from the 1st payoff, 240 to the second, etc. The contract payoff dates are the same and the amounts, but the time value has changed so one party may have value derived as a zero sum game from the other party, whereas the value for each at initiation is 0.作者: flyinggirl 时间: 2011-7-11 20:07
I hope you learn to 'fully' READ the post............
^^ we are saying the same thing your post just posted before mine did.作者: MiniMe7 时间: 2011-7-11 20:07
lol, I take my post back. I figured that you said exactly the same thing starting with a "Nope".
I just want to sleep.作者: kkn006 时间: 2011-7-11 20:07
Fortunately im not a politician who disagrees with something and then says the exact same thing. I one up your wanting to sleep with wanting to have a care free night of drinks.作者: BelalM 时间: 2011-7-11 20:07
Fellas, thank you very much!
Not rocket science uh?
I appreciate your help(both of you) and good luck on the exam!作者: bbtomato 时间: 2011-7-11 20:07
^ you said it yourself.....discount factor. At maturity (600 days), you get the notional amount of $1 paid back to you, in addition to the coupon. That $1discounted back to today means you will have to multiply it by the discount factor.
Disclaimer: I have not seen this question specifically, but I think I answered your question.
