ch05_swaps(互换)(金融工程学,华东师大).pptVIP

Swaps(互换)Chapter 5 Nature of Swaps A swap is an agreement to exchange cash flows (现金流) at specified future times according to certain specified rules Terminology LIBOR  the London InterBank Offer Rate It is the rate of interest offered by banks on  deposits from other banks in  Eurocurrency markets An Example of a “Plain Vanilla” Interest Rate Swap(大众型利率互换) An agreement by “Company B” to RECEIVE 6-month LIBOR and PAY a fixed rate of 5% pa every 6 months for 3 years on a  notional principal of $100 million Next slide illustrates cash flows, where POSITIVE flows are revenues (inflows) and NEGATIVE flows are expenses (outflows) Cash Flows to Company B(See Table 5.1, page 123) More on Table 5.1 The floating-rate payments are calculated using the six-month LIBOR rate prevailing six month before the payment date The principle is only used for the calculation of interest payments. However, the principle itself is not exchanged—Meaning for “Notional principle” The swap can be regarded as the exchange of a fixed-rate bond for a float-rate bond. Company B (A) is long (short) a floating-rate bond and short (long) a fixed-rate bond. Typical Uses of anInterest Rate Swap Converting a liability from a  FIXED rate liability to aFLOATING rate liability FLOATING rate liabilityto a FIXED rate liability Converting an investment from a  FIXED rate investment to aFLOATING rate investment  FLOATING rate investment to a FIXED rate investment Transforming a Floating-rate Loan to a Fixed-rate Consider a 3-year swap initialized on March 1, 2000 where Company B agrees to pay Company A 5%pa on $100 million Company A agrees to pay Company B 6-mth LIBOR on $100 million Suppose Company B has arranged to borrow $100 million LIBOR + 80bp Transforming a Floating-rate Loan to a Fixed-rate (continued) After Company B has entered into the swap, they have 3 sets of cash flows 1. Pays LIBOR plus 0.8% to outside lenders 2.