For a plain vanilla i/r swap, a decrease in i/r will most likely : Answer B - decrease the value of the pay fixed side of the swap.
Confused. Can someone helps to explain why? Thanks!作者: svgleeson 时间: 2013-4-11 09:47
Thanks, I think you are referring to swaption.
I have re-read the answer and also begin to understand the reason. When i/r falls, the fixed rate payer of the plain vanilla swap will be paying a higher rate than market rate of interest, hence its value will be lower than the value based on the market rate of interest (on a relative value basis). Tricky, I was wondering how value can decrease when i/r falls.
