INTEREST RATE SWAP

Interest rate swaps are a primary type of hedging method used by participants to mitigate their risks. With these swap contracts, participants can exchange their interest payments with another party to receive favourable terms in the future. There are several types of interest rate swaps that participants can use for that purpose. The most prevalent…

Read More Interest Rate Swap Tax Treatment

What is an Interest Rate Swap? Interest rate swaps are an example of financial derivative contracts. With interest rate swaps, entities can exchange one source of interest payments with another. There is also another party that agrees to swap the stream with the entity. The interest rate swap occurs based on a specified principal amount.…

Read More Accounting for Interest Rate Swaps

In a previous post, we presented a method for pricing a fixed-rate bond. In this post, we are going to discuss valuation of a callable bond. A callable bond (also called redeemable bond) is a type of bond (debt security) that allows the issuer of the bond to retain the privilege of redeeming the bond…

Read More Valuation of Callable Putable Bonds-Derivative Pricing in Python

Yonhap recently reported that South Korea’s investors appear to have lost money by investing in complex derivative products. The Financial Supervisory Service (FSS) said 3,654 individual investors and 188 businesses were found to have bought 822.4 billion won (US$677.8 million) worth of so-called “derivatives-linked fund” options sold by banks as of Aug. 7. Such derivative…

Read More Complex Derivative Linked to Constant Maturity Swap

In a previous post, we presented an example of Interest Rate Swap Pricing in Excel. In this post, we are going to provide an example of interest rate swap pricing in Python. We are going to use the USD Libor swap curve as at December 31 2018. Picture below shows the swap curve. Recall that…

Read More Interest Rate Swap-Derivative Pricing in Python

Debt instruments are an important part of the capital market.  In this post, we are going to provide an example of pricing a fixed-rate bond. A fixed rate bond is a long term debt paper that carries a predetermined interest rate. The interest rate is known as coupon rate and interest is payable at specified…

Read More Valuing a Fixed Rate Bond-Derivative Pricing in Python

An interest rate swap (IRS) is a financial derivative instrument that involves an exchange of a fixed interest rate for a floating interest rate.  More specifically, An interest rate swap’s (IRS’s) effective description is a derivative contract, agreed between two counterparties, which specifies the nature of an exchange of payments benchmarked against an interest rate…

Read More Interest Rate Swap-Derivative Pricing in Excel