Interest Rate Swap Valuation and Applications › Key Parameters
Michael BrenndoerferUpdated January 5, 20261 min read
Quantitative FinanceAll chapters Part 4 of 15Swaps and Credit Derivatives
Interest Rate Swap Valuation and Applications › Key ParametersOne section · Sections in this chapter9 / 17 ↓
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The key parameters for calculating the par swap rate connect the discount function to the fair fixed rate for a new swap:
- : Payment-date discount factors used for the fixed coupon annuity and hypothetical principal in the bond representation; the plain interest-rate swap does not exchange that principal.
- : Contractual accrual year fraction for period i. The example uses a common annual accrual of 1.0, not a payments-per-year parameter.
- : Fixed coupon rate that equalizes fixed and floating coupon PVs. Equivalently, the corresponding bonds including hypothetical principal are at par, giving zero initial net swap value.