Fundamentals of Swaps
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.
Understand Swaps and their applications in finance.
Learn how to do valuation of swaps as sum of the present value of two legs of swap.
Understand Interest rate swap, swap spread, payouts of two legs.
Understand the crisis of 2008, the issue with Libor, and switch from Libor based swaps to OIS swaps.
Understand equity swaps, issues with cash-settled swaps, and a glance at Quanto swaps.