This module consists of very general and flexible functions to calculate cash flows, theoretical prices, present values, unit present value changes and term structure risks of swaps. The functions can be used to analyze interest rate swaps and currency swaps (plain currency swaps, basis swaps and fixed swaps) that are standard swap types. It is also possible to analyze swaptions.

 With Derivatives Expert it is easy to construct new complicated swaps.

 Swaps enable a borrower to raise funds in the market to which he has best access, but to make interest and principal payments under the conditions (e.g. fixed or floating rate coupons) and in the currency of his preference. Swaps are useful for a number of reasons: to hedge interest rate or currency exposure, to obtain low-cost financing, to earn fees, to speculate etc.

 Typical swaps are derived from bonds and/or floaters, so these instruments and the modules dealing with them, namely the Bonds and Floaters modules, must also be understood. A swaption is a complex financial instruments and is based and constructed by using elements from several of the Derivatives Expert modules.

 Very complex swaps like Power Reverse Dual Currency Bermuda Swaps can be priced by using many different elements including monte carlo simulations. This swap has been priced and will be available for downloading by licensees of Derivatives Expert III. Refer also to the Statistical Tools module.

Contents

12.1 Introduction

Summary -- Context -- This Opens the Package

12.2 Objects

Introduction --
GeneralSwap -- InterestRateSwap -- InterestRateSwapFloatLeg
InterestRateSwapFixedLeg -- PlainCurrencySwap
PlainCurrencySwapFloatLeg -- PlainCurrencySwapFixedLeg
BasisSwap -- BasisSwapFloatLeg1 -- BasisSwapFloatLeg2
FixedSwap -- FixedSwapFixedLeg1 -- FixedSwapFixedLeg2

12.3 Functions

UnitPresentValueChange

12.4 Term Structures

Four term structures

+ 12.5 InterestRateSwap

Calendar Time

CashFlow -- PresentValue -- UnitPresentValueChange
TheoreticalPrice -- TermStructureRisk

+ 12.6 PlainCurrencySwap

Calendar Time

CashFlow -- PresentValue -- UnitPresentValueChange
TheoreticalPrice -- TermStructureRisk

+ 12.7 BasisSwap

Calendar Time

CashFlow -- PresentValue -- TermStructureRisk

12.8 FixedSwap

Introduction

12.9 GeneralSwap

Introduction

12.10 Swaption

Introduction