Pricing and Hedging Swaps
ISBN : 9781855640528
No.of Pages : 245
Price : GBP £145

This bookexplains both the basic and advanced principles of pricing swaps andtheir hedge applications. Chapters describe pricing methods, swapvaluation, dealing with interest rate exposure, developing tradingstrategies and their application in portfolio management. Lucid,clearly structured with extensive use of worked examples. Interestareas: derivatives, futures, options, valuation, investment management.



Introduction
Pricing and Hedging Swapsexplains both the basic and advanced principles of pricing swaps andtheir hedge applications. This detailed work examines the instrumentsused to hedge swaps and the workings of their markets and pricing,while illustrating how many of them are interrelated.
This book aims to cover in-depth the techniques of pricing and explore their implications for risk management, coverage includes:

• What is an interest rate swap? Features of a standard and non-interest swap
• The background to the swap market and its development
• Hedging Instruments including government bonds, futures contracts, forward rate agreements, loans and deposits
• Zero coupon pricing
• Valuing a swap including the bid-offer spread, the fixed leg and the floating leg
• Libor margins
• Dealing with interest rate exposure
• Hedging and trading swaps
• Interest rate options
• Trading strategies and their application in portfolio management

Includes a full set of worked examples, definitions and a glossary of symbols.
An invaluable resource for:

• Swaps traders and sales people
• Senior risk managers
• Interest rate options traders and brokers
• Corporate treasurers active in risk management
• Students of finance
• Risk software designers
• Consultants and accountants

                                                                                                                                                             
Table of Contents
Pricing and Hedging Swaps
Table of Contents
Chapter 1: Introduction
What the book is about
For whom the book is intended
Background knowledge required
An outline of the book
Chapter 2: Defining the Swap
What is an interest rate swap?
Features of a standard interest rate swap
Non standard interest rate swaps
Currency swaps
Why have principal exchanges?
Types of currency swaps
Chapter 3: Background to Swap Market
The development of the market
Market size
Developments in book running
The uses of swaps: a few examples
Chapter 4: Hedging Instruments
Government Bonds
Yield to Maturity
Markets details
Modified duration and convexity
Futures Contracts
Forward Rate Agreements
Loans and Deposits
Chapter 5: A Simple Approach to Swap Pricing
Basic concepts
The present value of a cashflow
Accrual basis conversion
Annual versus semi-annual
The value of an annuity
First worked examples
Comparison swaps
Worked examples: pricing
Worked examples: valuation
Basis swaps
Pricing currency swaps
Valuing currency swaps
Remarks
Chapter 6: Zero Coupon Pricing
In defence of zero coupon pricing
Constructing the discount function
Valuing LIBOR cashflows
Stripping the curve
A worked example
A more complicated example
Interpolation
Incorporating Futures
The futures strip
Integrating the curves
Other curves
Chapter 7: Valuing a Swap
The bid-offer spread
The fixed leg
The floating leg
Special features
LIBOR margins
Back-set and compounded LIBOR
Amortising and rollercoaster swaps
Currency swaps
Pricing the swap
Chapter 8: Interest Rate Exposure
A simple example
An experiment
The nature of the delta vector
Par swaps and other par rates
Equivalent positions
Analytical deltas
The case of no futures: a preview
Using no futures: the maths
How F changes as R changes
How R changes as R’ changes
How F changes as R’ changes
Between the grid points
Portfolio deltas
Equivalent positions
Expanded equivalent positions
Incorporating futures: a discussion
Futures: the maths
Building the discount function
The delta vector
Equivalent positions
The gamma matrix
Chapter 9: Hedging and Trading Swaps
Why and what to hedge
Hedging with bonds
Calculating the swap PVBP
Trading against the futures strip
The swap-FRA arbitrage
Bond futures hedging
Reinvestment risk
Forward FX arbitrage
Fixed-fixed currency swaps
Chapter 10: Interest Rate Options
A toy model
The standard model
Cap and floor exposures
Swaptions
Other models
Hedging options
Chapter 11: Managing a Portfolio
LIBOR exposures
Cross-currency and cash positions
Cash payments on swaps
Cross-currency cashflows
Chapter 12: Conclusions
Continuous Compounding
Example Sterling Curves
The Delta of a Par Swap
Zero Coupon and Additive Systems
Definitions
Proof
Answers to Questions of Chapter 5
Glossary of Symbols
Bibliography

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