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IRS AND CS

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khushi shah
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16 views

IRS AND CS

Uploaded by

khushi shah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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VALUATION OF A CURRENCY SWAP

VALUING A BOND

P.V OF
USD P.V OF JPY
Time USD CF USD CF JPY CY USD CF
1 0.4 0.390124 36 35.464029826
2 0.4 0.380492 36 34.936039208
3 0.4 0.371097 36 34.415909346
3 10 9.277435 1200 1147.1969782

Sum 10.41915 Sum 1252.01


11.381935969

Value of the currency (bond) sw


USDJPY Spot 110

JPY INT 0.015


USD INT 0.025
USDPRINCI 10 0.04
JPY PRINCI 1200 0.03

0.96278798 USD
Valuing as a Bond
Time Fixed CF Floating CF Discount Factor
0.25 1.5 101.45 0.97921896457
0.75 1.5
1.25 101.5

ZERO RATE FOR AN n- forward rate forward rate


year investment (% for nth year with s.a
YEAR p.a) (rc) compounding
0.25 0.028
0.75 0.032 0.034 0.03429064465
1.25 0.034 0.037 0.03734437034
Fixed Rate CF 3% Floating rate bonds ar
Last SOFR reset rate 2.90%
Notional value of a sw 100 3 0.028
9 0.032
15 0.034

(since they are paying its -ve) p.v of


floating discount net cash
Time fixed cf cf net cf factor flow

0.25 -1.5 0.00048


0.75 -1.5
1.25 -1.5
loating rate bonds are valued in the market

3 month SOFR
6 month SOFR
9 month SOFR
Hazard Rate 2% (probab of default during the year)
Risk free rate 0.05 (Probab of default during the year end)
Recovery Rate 40%
Present Value of Expected Premium Paym

Year POSTYE PODDY Time POS

1 0.9801986733068 0.0198013267 1 0.980199


2 0.9607894391523 0.0194092342 2 0.960789
3 0.9417645335842 0.0190249056 3 0.941765
4 0.9231163463866 0.0186481872 4 0.923116
5 0.904837418036 0.0182789284 5 0.904837

PV of exp pay-offs
PV of
exp
Default Recovery Exp discount payoff
Time probablity Rate payoff factor ($)
0.5 0.0198013266932 0.4 0.0119 0.97531 0.011587
1.5 0.0194092341544 0.4 0.0116 0.927743 0.010804
2.5 0.0190249055681 0.4 0.0114 0.882497 0.010074
3.5 0.0186481871976 0.4 0.0112 0.839457 0.009393
4.5 0.0182789283507 0.4 0.0110 0.798516 0.008758
0.05062

S will be 1.24%
ng the year) Present Value of exp premium
ng the year end) S' is the premium amt that we are calculating

ue of Expected Premium Payments

EP DF PVOEP

0.980199 s 0.951229 0.932394 s


0.960789 s 0.904837 0.869358 s
0.941765 s 0.860708 0.810584 s
0.923116 s 0.818731 0.755784 s
0.904837 s 0.778801 0.704688 s
4.07281

Exp Exp
Default accrual Accrual
Time Probab payment DF payment
0.5 0.019801 0.009901 s 0.97531 0.0097
1.5 0.019409 0.009705 s 0.927743 0.0090
2.5 0.019025 0.009512 s 0.882497 0.0084
3.5 0.018648 0.009324 s 0.839457 0.0078
4.5 0.018279 0.009139 s 0.798516 0.0073
0.0422
s
s
s
s
s
s
Valuing as a forward rate agreement

USDJPY JPYUSD JPYINT 1.50%


1 110 0.009091 USD INT 2.50%

FORWARD USD VALUE


TIME USD CF JPY CF EXCHANGE RATE OF JPY CF
1 -0.4 36 0.0091823 0.3306
2 -0.4 36 0.0092746 0.3339
3 -0.4 36 0.0093678 0.3372
3 -10 -1200 0.0093678 -11.2413

VALUE OF THE CURRENCY SWAPS


ement

1200 3% JPY CF
10 4% USD CF

PRESENT
VALUE
NET CASH OF (USD Continuous compunding and
FLOW (USD) CF) Discounting is used everywhere
-0.0694 -0.067724
-0.0661 -0.062891
-0.0628 -0.058225
1.2413 1.151629

0.96279 USD

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