Remember that the price of a plain vanilla interest rate swap is the fixed rate on the swap. The key to pricing swaps is the realization that a swap is essentially an exchange of bonds.  A plain vanilla (fixed-for-floating) interest rate swap can be replicated by the fixed payer issuing a fixed-rate bond to the […]

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The formulae for valuing all derivatives are essentially the same: \[Value\ =\ PV\left(what\ you\ will\ receive\right)\ –\ PV\left(what\ you\ will\ pay\right)\] The one valuing formula that needs some explanation is the formula for valuing a currency forward; it is slightly different from the other formulae, but the difference is never explained. Here goes: Given: \(V_t\): […]

This article is for members only.  You can become a member now by purchasing a

CFA® Level II Derivatives Membership, CFA® Level II Membership

This will give you access to this and all other articles at that membership level.