Plain Vanilla Swaps. Group member: Shanwei Huang An Gong. 1. History of Interest rate swaps. Interest-rate swaps have grown tremendously over the last 10 years.
last 10 years.
Swaps were first created to exploit comparative advantage. This is when two companies who want to borrow money are quoted fixed and floating rates such that by exchanging payments between themselves they benefit, at the same time benefiting the intermediary who puts the deal together.
[Discount factor in the previous period]/[1 + (Forward rate of the floating underlying asset in the previous period × Number of days in period/360)].
t(2), …, t(n).