Note that the level of interest rates at the start of the swap, and not the level of stock prices, determines
the swap rate.
EXAMPLE10.11
Assume the following term structure:
rrr
123
8910===%,%,% and
.
en, the prices of zero-coupon bonds can be calculated as:
D()
.
.1
1
108
09259==
D()
(.)
.2
1
109
08417
2
==
D()
(.)
.3
1
110
07513
3
==
Forward prices are calculated as:
D(,)
.
.
.12
08417
09259
09090==
D(,)
.
.
.23
07513
08417
08926==
Swap rate R =
1−
∑
DN
Dt
()
()
=
107513
092590841707513
−
++
.
...
= 9.8734%
10.19 Commodity Swaps
Commodity swaps are designed to
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