1、Options, Futures, and Other Derivatives, 5th edition 2002 by John C. Hull,25.1,Chapter 25,Swaps Revisited,Options, Futures, and Other Derivatives, 5th edition 2002 by John C. Hull,25.2,Valuation of Swaps,The standard approach is to assume that forward rates will be realizedThis works for plain vanil
2、la interest rate and plain vanilla currency swaps, but does not necessarily work for non-standard swaps,Options, Futures, and Other Derivatives, 5th edition 2002 by John C. Hull,25.3,Variations on Vanilla Interest Rate Swaps,Principal different on two sidesPayment frequency different on two sidesCan
3、 be floating for floating instead of floating for fixedIt is still correct to assume that forward rates are realizedHow should a swap exchanging the 3-month LIBOR for 3-month T-Bill rate be valued?,Options, Futures, and Other Derivatives, 5th edition 2002 by John C. Hull,25.4,Compounding Swaps,Inter
4、est is compounded instead of being paidExample: the fixed side is 6% compounded forward at 6.3% while the floating side is LIBOR plus 20 bps compounded forward at LIBOR plus 10 bps.This type of compounding swap can be valued using the “assume forward rates are realized” rule. This is because we can
5、enter into a series of forward contracts that have the effect of exchanging cash flows for their values when forward rates are realized.,Options, Futures, and Other Derivatives, 5th edition 2002 by John C. Hull,25.5,Currency Swaps,Standard currency swaps can be valued using the “assume forward LIBOR
6、 rate are realized” rule.Sometimes banks make a small adjustment because LIBOR in currency A is exchanged for LIBOR plus a spread in currency B,Options, Futures, and Other Derivatives, 5th edition 2002 by John C. Hull,25.6,More Complex Swaps,LIBOR-in-arrears swapsCMS and CMT swapsDifferential swapsT
7、o value these we assume that the realized rate is the forward rate plus a convexity adjustment,Options, Futures, and Other Derivatives, 5th edition 2002 by John C. Hull,25.7,Equity Swaps,Total return on an equity index is exchanged periodically for a fixed or floating returnWhen the return on an equ
8、ity index is exchanged for LIBOR the value of the swap is always zero immediately after a payment. This can be used to value the swap at other times.,Options, Futures, and Other Derivatives, 5th edition 2002 by John C. Hull,25.8,Swaps with Embedded Options,Accrual swapsCancelable swapsCancelable compounding swaps,Options, Futures, and Other Derivatives, 5th edition 2002 by John C. Hull,25.9,Other Swaps,Indexed principal swapCommodity swapVolatility swapBizzarre deals: for example the P&G 5/30 swap,
