Fundamentals of Swaps
Course Overview:
A swap is an agreement between two parties to exchange sequences of cash flows for a set period of time. Usually, at the time the contract is initiated, at least one of these series of cash flows is determined by a random or uncertain variable, such as an interest rate, foreign exchange rate, equity price, or commodity price.
Conceptually, one may view a swap as either a portfolio of forward contracts or as a long position in one bond coupled with a short position in another bond. This article will discuss the two most common and most basic types of swaps: interest rate and currency swaps.
Course Objectives:
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Understand Swaps and their applications in finance.
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Learn how to do valuation of swaps as sum of the present value of two legs of swap.
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Understand Interest rate swap, swap spread, payouts of two legs.
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Understand the crisis of 2008, the issue with Libor, and switch from Libor based swaps to OIS swaps.
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Understand equity swaps, issues with cash-settled swaps, and a glance at Quanto swaps.