Svopovi-Analiza rizika i portfolio strukture-Slajdovi-Ekonomski fakultet, Slajdovi od Upravljanje investicijama

Preuzmite Svopovi-Analiza rizika i portfolio strukture-Slajdovi-Ekonomski fakultet i više Slajdovi u PDF od Upravljanje investicijama samo na Docsity! Docsity.com Options, Futures, and Other Derivatives, 4th edition © 1999 by John C. Hull 5.1 Swaps Chapter 5 Docsity.com Options, Futures, and Other Derivatives, 4th edition © 1999 by John C. Hull 5.2 Nature of Swaps • A swap is an agreement to exchange cash flows at specified future times according to certain specified rules • Forward contract can be viewed as a simple example of a swap. At time t, Cash flow paid for 100S, where S is market price of one ounce of gold. Docsity.com Options, Futures, and Other Derivatives, 4th edition © 1999 by John C. Hull 5.5 ---------Millions of Dollars--------- LIBOR FLOATING FIXED Net Date Rate Cash Flow Cash Flow Cash Flow Mar.1, 1998 4.2% Sept. 1, 1998 4.8% +2.10 –2.50 –0.40 Mar.1, 1999 5.3% +2.40 –2.50 –0.10 Sept. 1, 1999 5.5% +2.65 –2.50 +0.15 Mar.1, 2000 5.6% +2.75 –2.50 +0.25 Sept. 1, 2000 5.9% +2.80 –2.50 +0.30 Mar.1, 2001 6.4% +2.95 –2.50 +0.45 Cash Flows to Company B (See Table 5.1, page 123) Docsity.com Options, Futures, and Other Derivatives, 4th edition © 1999 by John C. Hull 5.6 Properties of SWAPS • Notional principal • If the principal were exchanged at the end of the life of the swap, the nature of the deal would not be changed in any way • Swap can be regarded as an exchange of fixed rate bond for a floating rate bond Docsity.com Options, Futures, and Other Derivatives, 4th edition © 1999 by John C. Hull 5.7 Typical Uses of an Interest Rate Swap • Converting a liability from – fixed rate to floating rate – floating rate to fixed rate • Converting an investment from – fixed rate to floating rate – floating rate to fixed rate Docsity.com Options, Futures, and Other Derivatives, 4th edition © 1999 by John C. Hull 5.10 Financial Institution is Involved (Figure 5.4, page 126) A F.I. B LIBOR LIBOR LIBOR+0.8% 4.985% 5.015% 5.2% Docsity.com Options, Futures, and Other Derivatives, 4th edition © 1999 by John C. Hull 5.11 Financial Institution is Involved (See Figure 5.5, page 126) A F.I. B LIBOR LIBOR 4.7% 5.015%4.985% LIBOR-0.25% Docsity.com Options, Futures, and Other Derivatives, 4th edition © 1999 by John C. Hull 5.12 Pricing schedules • The fixed rate in a “plain vanilla” swap is sometimes quoted as a certain number of basis points above Treasury note yield • Swap rate is an average of bid and ask rates exchanged for floating • Swap spread – average excess of the fixed rate in a swop agreament over the coresponding Treasury rate Docsity.com Options, Futures, and Other Derivatives, 4th edition © 1999 by John C. Hull 5.15 The Swap when a Financial Institution is Involved (Figure 5.7, page 130) A F.I. B 10% LIBOR LIBOR LIBOR+1% 9.93% 9.97% Docsity.com Options, Futures, and Other Derivatives, 4th edition © 1999 by John C. Hull 5.16 Criticism of the Comparative Advantage Argument • The 10.0% and 11.2% rates available to A and B in fixed rate markets are 5-year rates • The LIBOR+0.3% and LIBOR+1% rates available in the floating rate market are six-month rates • B’s fixed rate depends on the spread above LIBOR it borrows at in the future Docsity.com Options, Futures, and Other Derivatives, 4th edition © 1999 by John C. Hull 5.17 Valuation of an Interest Rate Swap • Interest rate swaps can be valued as the difference between the value of a fixed- rate bond & the value of a floating-rate bond • Alternatively, they can be valued as a portfolio of forward rate agreements (FRAs) Docsity.com Options, Futures, and Other Derivatives, 4th edition © 1999 by John C. Hull 5.20 An Example of a Currency Swap An agreement to pay 11% on a sterling principal of £10,000,000 & receive 8% on a US$ principal of $15,000,000 every year for 5 years Docsity.com Options, Futures, and Other Derivatives, 4th edition © 1999 by John C. Hull 5.21 Exchange of Principal • In an interest rate swap the principal is not exchanged • In a currency swap the principal is exchanged at the beginning & the end of the swap Docsity.com Options, Futures, and Other Derivatives, 4th edition © 1999 by John C. Hull 5.22 The Cash Flows to company A (Table 5.5, page 137) Years Dollars Pounds $ ------millions------ 0 –15.00 +10.00 1 +1.20 –1.10 2 +1.20 –1.10 3 +1.20 –1.10 4 +1.20 –1.10 5 +16.20 -11.10 £ Docsity.com Options, Futures, and Other Derivatives, 4th edition © 1999 by John C. Hull 5.25 Valuation of Currency Swaps • Like interest rate swaps, currency swaps can be valued either as the difference between 2 bonds or as a portfolio of forward contracts Docsity.com Options, Futures, and Other Derivatives, 4th edition © 1999 by John C. Hull 5.26 Swaps & Forwards • A swap can be regarded as a convenient way of packaging forward contracts • The “plain vanilla” interest rate swap in our example consisted of 6 FRAs • The “fixed for fixed” currency swap in our example consisted of a cash transaction & 5 forward contracts Docsity.com Options, Futures, and Other Derivatives, 4th edition © 1999 by John C. Hull 5.27 Swaps & Forwards (continued) • The value of the swap is the sum of the values of the forward contracts underlying the swap • Swaps are normally “at the money” initially – This means that it costs NOTHING to enter into a swap – It does NOT mean that each forward contract underlying a swap is “at the money” initially