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Can somebody please explain how does the Matlab function "libor duration" works?Given below is an example where i have given duration as per my calculations and also as per MatlabFor ExampleSwapFixRate = 0.0383;Tenor = 7;the fixed side of swap as per matlab has duration of 4.7567 (as given below)whereas when i calculate using classical method with principal repayment i get 6.17and if do not have principal payment i get duration as 3.47Matlab Description of the functionliborduration Duration of a LIBOR-based interest rate swap Syntax[PayFixDuration GetFixDuration] = liborduration(SwapFixRate, Tenor, Settle)ArgumentsSwapFixRate Swap fixed rate in decimal.Tenor Life of the swap in years. Fractional numbers are rounded upward.Settle Settlement date.Description[PayFixDuration GetFixDuration] = liborduration(SwapFixRate, Tenor, Settle) computes the duration of LIBOR-based interest rate swaps.PayFixDuration is the modified duration, in years, realized when entering pay-fix side of the swap. GetFixDuration is the modified duration, in years, realized when entering receive-fix side of the swap. ExamplesGiven the data SwapFixRate = 0.0383;Tenor = 7;Settle = datenum('11-Oct-2002');compute the swap durations. [PayFixDuration GetFixDuration] = liborduration(SwapFixRate,... Tenor, Settle)PayFixDuration = -4.7567GetFixDuration = 4.7567Text

There is usually no principal exchange in a IR swap. Thats why Matlabs duration is less than yours. You have assumed that the fixed leg is like a bond.

Thanks Daveangel for your reply.But i am still not able to reconcile the matlab duration (4.75) with calculated duration without principal (3.47).Appreciate your reply.Thanks and Regards,Jugal

whats the yield of the swap or better still whats its pv ?

The yield of the swap is 3.83%.Regards,Jugal