Par Swap Rate
Computes the par swap rate from discount factors: the fixed rate that makes the interest rate swap's value zero at inception, equating the fixed and floating legs. The formula is (1 − last discount factor) divided by the sum of discount factors weighted by the period. It's a swap's market quote and the basis for marking existing positions to market. Enter the list of discount factors by payment date and the year-fraction of each period.
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Par Swap Rate
Computes the par swap rate from discount factors: the fixed rate that makes the interest rate swap's value zero at inception, equating the fixed and floating legs. The formula is (1 − last discount factor) divided by the sum of discount factors weighted by the period. It's a swap's market quote and the basis for marking existing positions to market. Enter the list of discount factors by payment date and the year-fraction of each period.
The rate that zeroes a swap
When two parties set up an interest rate swap, one pays fixed and the other pays floating. The opening question is: what fixed rate makes the deal fair, with neither side winning or losing right away? That's the par swap rate, the quote the market publishes and the starting point of all swap pricing.
The formula is simpler than it looks. The present value of the floating leg, in a standard swap, reduces to one minus the last discount factor. Divide that by the sum of discount factors weighted by the periods, the so-called annuity, and you get the rate that equates the two legs. All you need are the discount factors from the curve.
Enter the list of discount factors, one for each payment date, and the year-fraction of each period. The tool returns the par swap rate as a percentage. Once the swap is set up, comparing the current par rate with the contracted fixed rate is what reveals the position's market value.
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The results provided by this tool are for general informational and educational purposes only and do not constitute professional, financial, medical, legal, tax or accounting advice. Always confirm important decisions with a qualified professional and official sources.