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发表于 2010-4-22 11:07 | 只看该作者

Reading 61: Swap Markets and Contracts-LOS b, (Part 1) 习题精

market, center, forward, interest, 2010
Session 17: Derivative Investments: Options, Swaps, and Interest Rate and Credit Derivatives
Reading 61: Swap Markets and Contracts

LOS b, (Part 1): Explain the equivalence of interest rate swaps to a series of off market forward rate agreements (FRAs).

 

 

 

An off-market forward rate agreement (FRA):

A)
 provides a series of payments.
B)
 has a positive value at contract initiation.
C)
 cannot be priced with market rates.


 

An off-market FRA has a contract rate that differs from the zero-value rate at the inception of the contract; by definition, it has a positive value to one of the parties to the FRA.

 

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土豆妮

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发表于 2010-4-22 11:07 | 只看该作者

A swap is equivalent to a series of:

A)
 interest rate calls.
B)
 FRAs priced at market rates.
C)
 off-market FRAs.


Since the fixed rate on the swap is the same at every settlement date, a series of FRAs at those fixed rates will have values that differ from zero to the extent the fixed rate and the zero-value rate differ. This makes them off-market FRAs.

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