Interest Rate Swap Financial Model

The ability to enter all relevant assumptions about fixed and variable interest rates and see how the net present value (NPV) of each side changes becomes difficult to think about. Therefore, I have built a model to make things a bit easier to visualize.





Pricing
*Note the template will be e-mailed to you after purchase.

**Update - I have added the actual payments per each payment period and a chart for this so you can see the timing of each payment and if the fixed / variable side is paying or receiving.

I am not going to talk much about what an interest rate swap actually is because chances are if you are looking to model one out you already know this. I will just say that it is what it sounds like. One entity trades the future cash flows of one interest rate with cash flows of another interest rate, assuming the interest rates happen at the same time for every payment and the notional amount that the interest rates are based on never change.

This is a tradable derivative and they do trade. Companies do them because of their beliefs of how future variable interest rates will change (mainly how Libor will change).

So, at its most basic sense, the model shows two different sets of cash flows over the same amount of time. You will be able to edit the following variables that effect these cash flows:
  • First Payment Date.....
  • Notional Amount…..
  • Interest Rate…..
  • Payment Schedule…..
  • Total Years Swap Lasts For…..
  • Starting Libor…..
  • Expected Libor % Change per Period (+/-)…..
  • Period you Expect Libor to Start Changing…..
I added two charts. The first shows accumulated net present value over time of the fixed and variable legs and the other shows the non-discounted value of each over time.

The biggest thing that anyone trying to evaluate and value an interest rate swap needs to play with is what the variable rate is and by how much and when will it start changing. That is going to cause the biggest effect beyond what the actual fixed and starting variable rates are.

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