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Derivatives and Risk Management, 1st Edition
book

Derivatives and Risk Management, 1st Edition

by Sundaram Janakiramanan
May 2024
Intermediate to advanced content levelIntermediate to advanced
542 pages
27h 26m
English
Pearson India
Content preview from Derivatives and Risk Management, 1st Edition
Swaps 225
Swap rate is given by:
R =
1
D N
D t
( )
( )
Note that the level of interest rates at the start of the swap, and not the level of stock prices, determines
the swap rate.
E X A M P L E 1 0 . 1 1
Assume the following term structure:
r r r
1 2 3
8 9 10= = =%, %, % and
.
en, the prices of zero-coupon bonds can be calculated as:
D( )
.
.1
1
1 08
0 9259= =
D( )
( . )
.2
1
1 09
0 8417
2
= =
D( )
( . )
.3
1
1 10
0 7513
3
= =
Forward prices are calculated as:
D( , )
.
.
.1 2
0 8417
0 9259
0 9090= =
D( , )
.
.
.2 3
0 7513
0 8417
0 8926= =
Swap rate R =
1
D N
D t
( )
( )
=
1 0 7513
0 9259 0 8417 0 7513
+ +
.
. . .
= 9.8734%
10.19 Commodity Swaps
Commodity swaps are designed to
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Publisher Resources

ISBN: 9781299447547Publisher Website