Commodity and Interest Rate Swaps
I have come across a number of practice questions that ask if the value of a commodity swap or interest rate swap will change over time, even if market prices and/or interest rates do not change. The answer is always that yes, they will both change, because the value of a swap is the PV of a stream of cash flows.
I guess what I don't understand is, if the value of the swap is initially set to zero, and nothing changes over the life of the swap, why does its value change? If time-left-to-settlement is the only thing changing, it would seem like it would effect both parties equally.
Any thoughts?
Thanks |