redskins44

Oh and the most important thing to remember for equity swaps, is payments from the equity payer is not decided until the period end. This is different from other swaps where at t=0, you know the payments of t=1.

Lets say a index pays semi annually against a fixed rate of 5%, you value the 5% bond the same way as normal. To value the equity, you take Current Value of Index/Beginning Value. That is the equivalent interest rate the person will pay on the notional principal. That is not an annualized rate though!

So if index starts at 1000 and 180 days in, it is at 1100, the equity payer makes a 10% interest payment (not 5%).

Also, notional principal is reset at each equity payment. So if at 360 days into it, index value is 1200, the interest payment would be 1200/1100 = 9.1%.

redskins44

N/M i know what I did wrong, it should be 450/360 and 630/360 and not the other way around. I'm retarded..