Serving the Quantitative Finance Community
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- horacioaliaga
- Posts: 0
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negative rates - payer swap
If I enter on an EUR 4y Swap where I pay fixed an receive EONIA 3M, the cash flows will be1) Pay Fixed coupon2) Receiving negative floating rate EONIA 3MAll cashflows would negative to me, for any given positive strike.In order to make the trade fair, the strike should be negative then, so the cash flows should be:1) Pay a negative fixed coupon (receiver)2) Receive a negative floating rate Shall the swap be called "receiver" then?
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- Martinghoul
- Posts: 188
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negative rates - payer swap
Firstly, I am yet to encounter an IRS w/ term EONIA as a floating rate. Secondly, how can you possibly know all the cash flows? Yes, today's fixing might be negative, but this doesn't have to hold for the life of the swap. Finally, it is, in fact, perfectly feasible to have a reasonable term par swap with a negative fixed rate (e.g. Swiss). By convention such a position is still called "paid" (I avoid "payer" and "receiver" terminology for swaps, to prevent confusion with swaptions).