Serving the Quantitative Finance Community
-
- JohnsonLeeBridge
- Posts: 0
- Joined:
Interest rate swap zero yield/rate
What is the difference between a swap rate and a zero-swap rate/yield. Is the latter that derived from the zero interest rates.
Interest rate swap zero yield/rate
A par swap rate is a traded observable rate and generally pays periodic coupon payments on a notional principal. A zero coupon swap rate is derived from par swap rates through a process that removes the effects of coupon payments, typically using a process called bootstrapping or some king of optimization process. The basic idea is that one should arrive at the same price of the swap when the par swap coupons are discounted to present vbalue using the zero coupon rates. There are dozens if not hundreds of threads on this topic on the Wilmott forums.