Interest Rate Swaps: Pricing, Valuation, DV01 & Hedging

What you'll build

What you will be able to do

Each lab ends with a concrete result that you build yourself and the checker confirms, cell by cell.

• Lay out every payment of a 2-year pay-fixed swap: the day count fractions, the fixed leg, the floating leg and the net settlement.
• Strip the 1- to 5-year par swap rates into discount factors one maturity at a time, sum them into the annuity and turn them into zero rates.
• Read the 1-year forward rates out of Corvane's discount factors, price a 2-year rate that starts in 3 years and a forward-starting swap, and chart the three curves.
• Price a 3-year semi-annual swap: the annuity with SUMPRODUCT, the floating leg, the par rate and the value of a dealer's off-market quote.
• One year after Corvane locked in 3.50% for 5 years, rates are higher. You revalue both legs on today's curve and find what the swap is worth.
• Shift every zero rate up by one basis point, reprice Corvane's new 5-year swap and measure how many dollars it gains per basis point.
• Run Corvane's $40m SOFR loan and its $30m pay-fixed swap through eight quarters, find the net interest cost and test how well the swap offset the rate risk.
• Compare a year of interest on Corvane's hedged $30m unhedged, with a pay-fixed swap and with a 4.50% cap across six SOFR scenarios, find the breakeven and chart the three cost lines.