Hello sir, I have one question: Value of both the bonds has to be equal at inception. But in the case of fixed for fixed swap, why have we assumed both the fixed coupon bonds to be equal to its par value. In case of fixed for floating, it is because of the fact that a floater always resets its value to par. Hence, for a fixed bond to be equal to the floater, it also has to have a value of its par. But why in the case of fixed for fixed case?
Sir, in valuing the floater, though we don't know the reset rates today but the CFs will be expected from the bond right? So why are we taking only one coupon payment and the Notional Principal?
On every reset date, floating rate of a bond will be equal to par because whatever CFs you are getting in future are discounted at the rate in the market which will be coupon rate only. When coupon and discount rates are same, value of floating rate bond will automatically trade at par
Since we're equating the value of both the bonds and that to par, now we know that in order for a bond to have a value equal to par value, coupon rate is also called par rate. Hence, the formula for par rate is 1-z4/(z1+z2+z3+z4). Here, in swaps, the fixed rate is nothing but the par rate.
Erm please for the floating part why didn't we find the coupon payment for the 2nd and 3rd years but we ended on just 1 discounting it by 0.6 years why didn't you do it for the rest
Floating rate bonds reset to par on every reset date. So you you know they will be prices at notional (100) on that date. Hence subsequent cash flow are not required (also not known)
I didn't understand the pricing of euro and GBP because when I m solving while watching this I got 1.92 for euro but your's is 3.46 can you explain me how that came from?
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Woww.....I usually dont comment on videos but this was a masterpiece.... dhanyawad sirji 🙏🙏
thank you :)
Thank you for this video,I was having difficulty with currency swap and now you have taught in such a way I wont forget it.
Thank you sir for the video. Much clear than the CFA text book, which is hard to understand.
Thanks sir. Very well understood. Thoroughly enjoyed your session.
Sir your teaching style is fantastic
at 9:25, dont you think A should give 100 usd to B and B give 140 AUD to A? because we swap the currency.
nice learning
Thank you!
Hello sir, I have one question: Value of both the bonds has to be equal at inception. But in the case of fixed for fixed swap, why have we assumed both the fixed coupon bonds to be equal to its par value. In case of fixed for floating, it is because of the fact that a floater always resets its value to par. Hence, for a fixed bond to be equal to the floater, it also has to have a value of its par. But why in the case of fixed for fixed case?
because of law of one price. Otherwise there will be arbitrage situation.
Sir, in valuing the floater, though we don't know the reset rates today but the CFs will be expected from the bond right?
So why are we taking only one coupon payment and the Notional Principal?
On every reset date, floating rate of a bond will be equal to par because whatever CFs you are getting in future are discounted at the rate in the market which will be coupon rate only. When coupon and discount rates are same, value of floating rate bond will automatically trade at par
Is this applicable for CFA or FRM ?
Hi I didn't understand the part about 1-z4/(z1+z2+z3+z4). Could you please explain?
refer to this video ruclips.net/video/iv3U9mbTrmM/видео.html
Since we're equating the value of both the bonds and that to par, now we know that in order for a bond to have a value equal to par value, coupon rate is also called par rate. Hence, the formula for par rate is 1-z4/(z1+z2+z3+z4). Here, in swaps, the fixed rate is nothing but the par rate.
Erm please for the floating part why didn't we find the coupon payment for the 2nd and 3rd years but we ended on just 1 discounting it by 0.6 years why didn't you do it for the rest
Floating rate bonds reset to par on every reset date. So you you know they will be prices at notional (100) on that date. Hence subsequent cash flow are not required (also not known)
I didn't understand the pricing of euro and GBP because when I m solving while watching this I got 1.92 for euro but your's is 3.46 can you explain me how that came from?
See this is currency interest rate swap.. Not currency swap.