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Valuation of Interest Rate Swaps and Swaptions

Valuation of Interest Rate Swaps and Swaptions

Gerald W. Buetow, Frank J. Fabozzi

ISBN: 978-1-883-24989-2 June 2000 248 Pages


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Among the major innovations in the financial markets have been interest rate swaps and swapations, instruments which entail having an arrangement to barter differently structured payment flows for a particular period of time. These instruments have furnished portfolio and risk managers and corporate treasurers with a better tool for controlling interest rate risk. Valuation of Interest Rate Swaps and Swapations explains how interest rate swaps are valued and the factors that affect their value-an ideal way to manage interest or income payments. Various valuations approaches and models are covered, with special end-of-chapter questions and solutions included.
About the Authors.


Calculating Swap Payments.

Computing the Present Value of Swap Payments and Determining the Swap Fixed Rate.

Traditional Approach to the Valuation of a Plain Vanilla Swap.

Lattice Approach to Valuation.

Swap Valuation Using the Lattice Approach.

Valuation of Forward Start Swaps.

Valuing a Swaption.

Factos that Affect the Value of a Swaption.

Valuing Non-LIBOR Based Swaps and Basis Swaps.

Controlling Interest Rate Risk with Swaps.

Appendix A: Theoretical Spot and Forward Rates.

Appendix B: Binomial Interest Rate Model.

Appendix C: Valuation of Swaps Using the Trinomial Approach.