Overview

In this tutorial, we look at the various uses of interest rate swaps. We identify the major players in the swap market and outline their key roles and responsibilities. We focus on the general approach to calculate the value of a swap transaction. The tutorial also shows how simple calculations can give good approximations to otherwise complex results.

Objective

On completion of this tutorial, you will be able to:
- Describe the uses of interest rate swaps
- Outline the roles and responsibilities of the major players in the swap market
- Calculate the future value and timing of various cash flows associated with a swap
- Calculate the discount factors applicable to future dates and the present value of a collection of cash flows in a swap
- Define how the yield curve for swap pricing and valuation is derived from different sources
- Build a yield curve from a combination of deposits and money market futures and identify the factors that may affect the curve
- Outline the different conventions prevalent in the major swap markets
- Calculate values for simple swap structures and describe the imperfections and approximations implicit in any such simplified approach

Content

Module 1: Swaps - Applications
Topic 1: Uses of Swaps
Topic 2: Swap Market Players

Module 2: Swaps - Pricing & Valuation (Part I)
Topic 1: Swap Cash Flows
Topic 2: Valuing the Swap Cash Flows

Module 3: Swaps - Pricing & Valuation (Part II)
Topic 1: Swap Rates
Topic 2: Building the Swap Curve
Topic 3: Market Conventions
Topic 4: Valuing Simple Swap Structures