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Proceedings of the 4th International Conference on Economic Management and Model Engineering, ICEMME 2022, November 18-20, 2022, Nanjing, China

Research Article

Mathematics of the Bond and Interest-Rate Swap Markets

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  • @INPROCEEDINGS{10.4108/eai.18-11-2022.2327182,
        author={Chunhui  Song and Qingyang  Ma and Jiatong  Li},
        title={Mathematics of the Bond and Interest-Rate Swap Markets},
        proceedings={Proceedings of the 4th International Conference on Economic Management and Model Engineering, ICEMME 2022, November 18-20, 2022, Nanjing, China},
        publisher={EAI},
        proceedings_a={ICEMME},
        year={2023},
        month={2},
        keywords={swap; bond; libor; cash flow; present value; valuation},
        doi={10.4108/eai.18-11-2022.2327182}
    }
    
  • Chunhui Song
    Qingyang Ma
    Jiatong Li
    Year: 2023
    Mathematics of the Bond and Interest-Rate Swap Markets
    ICEMME
    EAI
    DOI: 10.4108/eai.18-11-2022.2327182
Chunhui Song1,*, Qingyang Ma2, Jiatong Li3
  • 1: School of Science, Xi’an Jiaotong-liverpool University
  • 2: School of Management, Beijing Jiaotong University
  • 3: Beijing No.80 High School International Department
*Contact email: 1725348661@qq.com

Abstract

As a financial derivative instrument, interest rate swap has been invested by an increasing number of investors due to a variety of reasons, but this paper emphasizes the most significant ones which are speculative function and the role of risk avoidance. In addition, this report aims to look for relevance, including both similarities and differences between interest rate swap and bond. Important interest rates such as LIBOR rate and swap rate are also introduced, from which swap payments or cash flows in each payment date are calculated. One method to value a swap is based on the present value of two bonds. Although this report itself may have limitations, it provides a foundation for further research on either swap or other financial products.

Keywords
swap; bond; libor; cash flow; present value; valuation
Published
2023-02-15
Publisher
EAI
http://dx.doi.org/10.4108/eai.18-11-2022.2327182
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