5.06.2005

Q&A: What's the cashflow if an equity swap...

...has been arranged between an investor and a dealer. The notional principal is $100 million, and payments will be made semiannually. The investor agrees to pay the dealer the return on a small-cap stock index, and the dealer agrees to pay a fixed rate of 6.75 percent, with payments made on the basis of 182 days in the period and 365 days in a year. The small-cap index starts off at 1,805.20; six months later it is at 1,796.15.

A

  • The fixed payment is $100,000,000 x 0.0675 x 182/365 = $3,365,753.
  • The equity payment is (1796.15/1805.20 - 1) x $100,000,000 = -$501,329.
  • The cashflow from the dealer to the investor is $3,365,753 + $501,329 = $3,867,082.

Category: C++ Quant-Derivatives-Swaps

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