Sensitivity of a plain vanilla swap

frenchyWill · May 29th, 2011, 8:17 am

Hi everyone,If i have a 18m vanilla swap, indexed on the euribor 3m with quaterly interest paiements, does that mean that i have sensitivity to the 18m interest rate?For me the answer is yes because, in absence of opportunity of arbitrage, the 18m interest rate is the weighted sum of the 3m spot and the 3m forward interest rates. But i just want to be sure !Thanks guy

rprat · May 29th, 2011, 2:53 pm

I am not sure but I agree with you. Just because the horizon is 18 m, the swap will be sensitive to 18m interest rate.

DocToc · May 29th, 2011, 3:56 pm

yea all your delta (before the first fixing goes in) should be in the 18m bucket. So depending how your curve is constructed should be in the futures strip probably. i dont agree with your reasoning though.