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As OTC instruments, interest rate swaps (IRSs) can be customised in a number of ways and can be structured to meet the specific needs of the counterparties. For example: payment dates could be irregular, the notional of the swap could be amortized over time, reset dates (or fixing dates) of the floating rate could be irregular, mandatory break clauses may be inserted into the contract, etc.
While this principle holds true for any swap, the following discussion is for plain vanilla interest rate swaps and is representative of pure rational pricing as it excludes credit risk. For interest rate swaps, there are in fact two methods, which will (must) return the same value: in terms of bond prices, or as a portfolio of forward ...
Moneyness, therefore, is determined based on whether the strike rate is higher, lower, or at the same level as the forward swap rate. Addressing this, quantitative analysts value swaptions by constructing complex lattice-based term structure and short-rate models that describe the movement of interest rates over time.
ISDA was initially created in 1985 [2] as the International Swap Dealers Associations, Inc. and subsequently changed its name switching "Swap Dealers" to "Swaps and Derivatives". This change was made to focus more attention on their efforts to improve the more broad derivatives markets and away from strictly interest rate swap contracts.
Over the last couple of years, interest rates have fluctuated quite a bit. After plummeting to record lows in 2020, they made a steep climb back. As you navigate the changing interest rate climate ...
The swaps that must be traded on SEFs are both subject to a CFTC-centralized clearing mandate and have been determined to be "made available to trade" (MAT) by at least one SEF. Four categories of interest rate swaps and two categories of credit default swaps are currently subject to clearing mandates. [9]