The Comparison of Interest Rate Swaps Valuation Models
碩士 === 銘傳大學 === 財務金融學系 === 86 === An interest rate swap is an agreement in which two parties,sometimes called counterparties,agree to exchange interest payments according to specific formulas. Pricing an interest rate swap means to determine the fixed rate that is appropriate for the terms of the...
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| Format: | Others |
| Language: | zh-TW |
| Published: |
1998
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| Online Access: | http://ndltd.ncl.edu.tw/handle/72047223863721616946 |
| Summary: | 碩士 === 銘傳大學 === 財務金融學系 === 86 === An interest rate swap is an agreement in which two parties,sometimes called counterparties,agree to exchange interest payments according to specific formulas. Pricing an interest rate swap means to determine the fixed rate that is appropriate for the terms of the swap. This is called the swap rate. A swap can be viewed as a combination of fixed and floating-rate bonds. Since a swap involves no initial exchange of cash, it should have zero initial value. Thus,to price the swap means to determine the fixed rate that will make the swap have zero initial value. This thesis applies the one factor Vasicek(1977) model and CIR(1985) model by using their closed form solution of the zero coupon bond to valuate the interest rate swap and compares the pricing performance between two models. The empirical results of this study show that :(1) The theoretical price of two models is under the market price and the Vasicek model is better than the CIR model.(2)The pricing error is getting worse and worse with contract tenor. The main reason is that the variables of two models is constant not time-dependent.
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